DFC Guarantee Case Study Development

Palladium International, LLC is the implementing contractor of the USAID funded Kenya Investment Mechanism (KIM).

USAID's Development Credit Authority (DFC) was created to mobilize local private capital through the establishment of real risk sharing relationships with private financial institutions in USAID supported countries. The tool is available to all USAID overseas missions and can be used as a vehicle for providing much needed credit to an array of enterprises and underserved sectors. The Small and Medium Enterprises (SMEs) sector has faced serious challenges in accessing funding to undertake projects that could demonstrate their profitability and positive social and economic development impact in Kenya. These challenges are even more difficult due to the perceived high risk of financing the SMEs in the agricultural sector. Where finance is available, access is limited by unfavourable terms to the borrower, such as 150%-200% collateral requirements and short-term loan tenors. By covering 50% of the risk exposure of the principal loan disbursed, the DFC guarantees are designed and intended to fix these financial market imperfections. The guarantee targets sectors and borrowers constrained by a variety of factors such as lack of formal collateral which is essential in most financial institutions, lack of financial literacy and inadequate property registry systems. By taking up these risks, DFC guarantee seeks to open financing to these sectors.

Kenya Investment Mechanism is currently managing six financial institutions (FIs) that are actively running ten DFC guarantee programs. KIM has been providing technical assistance to the FIs in order to increase lending to SMEs by enabling the FIs better understand management and administration of the DFC guarantee through activities like agribusiness value chain training, new product development, DFC guarantee training, transaction structuring advisory, among other support services.

The purpose of this assignment is to identify, and document how Musoni Microfinance Bank has been able to effectively utilize the DFC credit guarantee program using innovative digital technology to scale up its agricultural lending, thereby having a real impact to the intended borrowers.

Please see attached: Full Request for Proposal, Field/217738/DFC Guarantee/FFP-2022 for more information.

Details

Kenya

Closing date:
26 January 2022