Following is a Web version of a document from USAID's 1997 Congressional Presentation. Please note that some formatting may have been lost in the automated conversion of the original file. This document is also available for download in its original WordPerfect 5.1 format.

USAID's FY 1997 credit subsidy request approximates the Agency's FY 1996 appropriations levels. USAID continues to believe that there are significant instances in which the U.S. development priorities can be best funded through credit, and that the Agency should have the flexibility to use credit to support credit-worthy borrowers and projects.

FY 1997 Micro and Small Enterprise Development Program Request:
Guaranty Subsidy: $1,350,000
Direct Loan Subsidy: $150,000
Administrative Expenses: $500,000

Broad-based, sustainable, economic growth requires an expanding private sector, including thriving micro and small businesses. The success of micro and small enterprises depends, in large part, on their ability to access financing to support viable business ventures. Micro and Small Enterprise Development (MSED) program, the successor to the Private Sector Investment program, was originally established by Congress in 1983 to work with private financial institutions to correct "market imperfections" inhibiting the flow of credit to small businesses in developing nations worldwide. To date, the programs have helped mobilize in excess of $200 million in private sector loans, substantially to support small businesses and, increasingly, microenterprises. Under the MSED program, USAID presently operates 58 facilities in 21 developing countries and maintains an active portfolio of over $100 million in loans and guarantees.

USAID, through the MSED program, strives to build sustainable linkages between financial institutions and small and microenterprises lacking full access to formal financial markets. Its primary tool is the Loan Portfolio Guaranty (LPG) program, which provides loan guarantees covering up to 50% of the principal loss on a portfolio of small business loans, and up to 70% for micro-loans, made by financial institutions. Guarantees are combined with training and technical assistance to improve the capacity of banks to assess small and micro business credits, and to assist borrowers to present bankable proposals to lending institutions. In the last three years alone, the MSED program has trained more than 500 developing nation bankers from participating financial institutions.

The MSED program also uses direct loans and guarantees to provide capital for PVOs and NGOs engaged in microenterprise lending activities and to create sustainable relationships between PVOs and NGOs, and formal financial institutions.

The MSED program's performance is measured by the following: (1) the degree to which participating financial institutions increase their lending to micro and small businesses; (2) its success in strengthening the capacity of indigenous financial institutions to engage in micro and small business lending; and (3) the ability of the program to assist sustainable PVOs and NGOs to access formal sector financing for on-lending to microenterprises.

Data collected on the LPG program over the past four years (see table below) indicates that participant banks are making significant progress reaching new, smaller borrowers under the program. For example, two participating banks in Sri Lanka have provided loans of under $1,000 to thousands of new borrowers who would not otherwise have had access to bank financing. Similarly, one bank in the South Africa program has issued more than 3,000 loans averaging $215 to new South African borrowers.

	FY 1992	FY 1993	FY 1994	FY 1995
Average Loan Size	$18,540	$8,560	$5,544	6,814
Average Borrower Asset Size	$72,823	$21,897	$16,931	20,407
Average Borrower Collateral Requirements	N/A	46.5%	57.5%	38.0%
% of First Time Borrowers	33.9%	36.1%	73.5%	79.1

FY 1997 Housing Guaranty Program Request:
Guaranty Subsidy: $5,000,000
Administrative Expenses: $6,000,000

The Housing Guaranty program provides for long-term financing, through the U.S. private sector, to support urban and environmental development initiatives in host countries. Since the program's inception, USAID has authorized over $2.8 billion in loan guaranties, supporting more than 200 projects in over 40 countries. In addition to the over $2.8 billion in authorized loan guaranties provided, this program has leveraged $19.6 billion in host country and private sector matching funds. Much of this $2.8 billion portfolio is active and, to-date, is continuing to provide funding for urban and environmental development initiatives in the host countries.

The Housing Guaranty program supports two of USAID's strategic goals, encouraging economic growth and protecting the environment, by improving host countries' capacity to deal with urbanization and by promoting the strategic objective of sustainable urbanization through increased urban environmental protection, improved urban environmental management, and increased public access to environmental and shelter services. Emphasis is placed on addressing urban and environmental problems that impair human health, decrease child survival rates, and prevent economic progress. In FY 1997, the Housing Guaranty program will leverage $5 million of budget subsidy authority to provide approximately $47 million for addressing these problems.

The Housing Guaranty program continues to achieve concrete results and has received numerous internationally respected awards as recognition for the results achieved. However, the most telling indicator of the results achieved by the Housing Guaranty program is the number of people benefited by the program. In July 1995, a beneficiary analysis was undertaken, and it concluded that over 28.7 million people have been directly benefited by the Housing Guaranty program. This analysis also concluded that although the program provides long-term financing, it is responsive to immediate development needs. For example, in FY 1995 alone, the Private Sector Guaranty program in South Africa, which was authorized at the end of FY 1994, guaranteed 26,000 loans for new houses, directly providing shelter for more than 200,000 low-income individuals.

Country	Authorization Levels
Asia and Near East Indonesia India Morocco Africa South Africa Europe and the Newly Independent States Czech Republic	$10,000,000 $10,000,000 $7,000,000 $10,000,000 $10,000,000
Total:	$47,000,000

The administrative expense funds provide for operating costs associated with the Housing Guaranty program. USAID monitors and evaluates this portfolio on a periodic basis for both the attainment of programmatic goals and for compliance with a variety of laws, including the Chief Financial Officer's Act of 1990. The request of $6 million is the minimum amount needed to meet these requirements and to authorize the five country programs presented above.