Ecobank and USAID's Development Credit Authority: A Pan-African Approach to Unlocking Private Capital

How do you unlock millions in private capital and support economic growth across Africa? Partner with one of the largest Pan-African banks.

The U.S. Agency for International Development (USAID) takes partnership seriously. In seeking sustainable and locally owned solutions, USAID partners with companies and financial institutions headquartered in developing countries to promote shared development objectives. These objectives can include deepening financial markets and increasing access to finance in key sectors to fuel economic growth. That's why for the past 16 years, USAID's Development Credit Authority (DCA) has been partnering with private financial institutions to share the risk on loans to underserved borrowers and sectors. In doing so, USAID furthers its own development goals while helping our financial partners enter new sectors and markets, leading to stronger market share, market penetration, and higher returns--a win-win for both DCA and its partners.

Ecobank and DCA, through the years
Ecobank is one of DCA's strongest partners in Africa. Its parent company--Ecobank Transnational Incorporated--is the leading independent pan-African banking group with a presence in 36 African countries, and employs over 20,000 people in 40 different countries in over 1,200 branches and offices. In addition to building a world-class pan-African bank, Ecobank also strives to contribute to the economic development and financial integration of Africa.

This dual mandate has been the foundation of a partnership that has spanned more than 10 years. It began in 2003 with the signing of a $3 million loan portfolio guarantee to support loans to small and medium enterprises (SMEs) with the goal of supporting private sector growth in Ghana. Now, DCA and Ecobank work together in nine countries through 13 active guarantees supporting loans to almost 150 enterprises. Together, USAID's DCA and Ecobank have supported financing in various sectors, including agriculture, education, micro-enterprise, renewable energy, and health.

The bank has been able to finance higher perceived risk sectors, with the comfort of the USAID DCA credit guarantee. To date, Ecobank has seen an average default rate of only 3.0 percent across its entire West African DCA portfolio, significantly lower than the 15.7 percent rate reported by the International Monetary Fund for the region. This low default rate is helping to prove that the perceived risks are greater than the real risks of financing development.

New Frontiers
The longstanding Ecobank-USAID partnership continues to deepen across the continent. In September 2015, USAID used the DCA guarantee tool to enter into two new agreements with Ecobank Cameroon and Ecobank Ghana. The $3.7 million guarantee agreement in Cameroon, DCA's first guarantee in the country, will support loans to the health sector, including to private hospitals, clinics, and pharmacies. This comes as a response to the lack of comfort of commercial banks in Cameroon to grant longer-tenor (up to five years) loans to SMEs in the private health care sector without significant personal or financial collateral, beyond health care equipment not often seen as acceptable collateral due to its specialized nature. Ultimately the DCA guarantee will allow private health care providers to scale up and improve the quality of care in Cameroon.

DCA also signed a landmark agreement with a consortium of financial institutions, which included Ecobank Ghana, to catalyze up to $75 million in private credit to fund SMEs working in the renewable energy sector. Ecobank Ghana will take responsibility for $10 million of the guarantee to increase access to working capital and provide longer-term loans for companies investing in the off-grid energy sector in Ghana. It is the largest and most ambitious guarantee DCA has structured with Ecobank to date.

Multi-faceted partnership approach
USAID's DCA guarantee is only one part of what makes a strong public-private partnership. USAID field missions work with the DCA office to create technical assistance programs which address other constraints on access to finance. This technical assistance often includes support for the lenders as well as the potential borrowers. In Cameroon, for example, USAID is working to expand access and improve the quality of family planning services. While a DCA guarantee helps clinics, retail pharmacies, and other private health SMEs gain access to credit, technical assistance from USAID helps these borrowers to strengthen their business associations, improve their family planning services, and develop robust financial management systems. It is a holistic approach that leads to sustainable outcomes.

Financing for Development
DCA's continuing partnership with Ecobank is one way USAID is putting into action the landmark development initiatives of 2015. In addition to the adoption of the 2030 Agenda for Sustainable Development in September, the United Nations also adopted the Addis Ababa Action Agenda, which the White House called "a roadmap to help countries identify, attract and access diverse sources of development finance to realize the 2030 Agenda." Nowhere is this roadmap more pertinent than in Africa where there are increasing flows of available private capital coupled with a staggering credit gap of $100 billion in development sectors. DCA's partnership with Ecobank has served as an example and model for other guarantees on the continent showing what works when interests are truly aligned. As one Ecobank employee reflected, "The partnership with USAID has been instrumental in supporting SMEs, notably in the agriculture sector and has contributed to giving us greater confidence in properly accompanying some of our customers in that sector whilst also providing an increased understanding of the dynamics of such sector".

DCA has partnered with over 340 institutions similar to Ecobank across 74 countries to mobilize $4.2 billion in private capital since 1999. Visit our website to learn more.

Authored by Megan Rapp, Africa Team Lead, USAID/Development Credit Authority