2014 Emerging Leaders

Anthony Cotton, Amanda Femal, Jason Fleming and the DCA Transaction Teams

Generated nearly $1 billion in aid for 60 projects in 42 developing countries during the past two years through an innovative, public–private loan guarantee program.

In developing countries like Kenya, commercial banks often are reluctant to issue loans to small businesses and entrepreneurs, which they consider too risky. This means that important investments in industries such as agriculture, energy and health care languish.

That is changing thanks to a team of young investment advisors at the U.S. Agency for International Development (USAID) who find opportunities to provide U.S. government loan guarantees to create incentives for new lending to these industries.

The USAID team recently brokered a deal with a Kenyan bank, for example, to guarantee up to $10 million in new lending to help 50 private hospitals, clinics and labs purchase equipment like incubators and MRI machines. As part of the deal, USAID is partnering with General Electric (GE) to cover the cost of the USAID guarantee, resulting in a transaction with significant development impact at virtually no cost to the American taxpayer.

“This is a very revolutionary way of doing development. They did an incredible job of reorienting the thinking of financial institutions,” said Franklin Moore, deputy assistant administrator in the agency’s African bureau. “Development credit was a new idea at USAID, a new way to do things.”

Africa is not the only continent on the radar of these 19 investment specialists, led by Anthony Cotton, Jason Fleming, Amanda Femal and John Patrick Gibbons, who also oversee transactions in Asia, Eastern Europe, Latin America and the Middle East. Over the past two years the team has forged 60 deals worldwide under the agency’s Development Credit Authority (DCA).

USAID colleagues credit the team with shaking up the way their agency traditionally operated. During the first 12 years of its existence, DCA mobilized $2.1 billion in loans. During the past two years alone, the team generated an additional $1 billion in investments, which is expected to improve the lives of an estimated 550,000 people in 42 developing countries.

Under this program, USAID typically issues loan guarantees to private lenders overseas, sometimes paid for, as in the Kenya health clinic transactions, by third parties like GE rather than through U.S. development assistance funds.

USAID guarantees cover up to 50 percent of the principal in loans to borrowers that advance U.S. international development objectives. The partial guarantees help demonstrate to local banks that loans to underserved sectors can be profitable, and the program fosters self-sustaining financing because banks become willing to lend on a continuous basis without the support of additional guarantees from USAID.

To pull off the exponential growth of the loan program, the investment officers and portfolio managers have targeted new financial partners that lend to nontraditional sectors and investigated local markets to produce comprehensive economic analyses and assessments to minimize the risk of loan defaults.

“Until two years ago, this organization was demand-driven. They had their product and when they saw something applicable, they would do a deal. Now this team is much more strategic,” said Eric Postel, an assistant administrator with USAID. “They’re asking, ‘What are the problems and how can the private sector help?’”

Other big projects include a $100 million private loan guarantee to an asset management group to encourage investments in small and medium-size clean-energy investments in India, where frequent power outages stunt economic growth. In Mexico, where banks are often unwilling to loan money to local businesses, they designed a $60 million program to unlock Mexican pension funds and translate that money into additional credit for up to 400 entrepreneurs.

In addition to the investment team, another colleague is working to make public important data about loan availability and how the loans are achieving their intended development outcomes. Stephanie Grosser, a data technology and communications advisor, has worked with the program to create a digital map showing where every loan guaranteed by USAID has been made and where current financing is still available. Although close to 300 banks around the world were willing to provide loans through the USAID program, credit-worthy but underserved entrepreneurs in many countries didn’t know where to go for financing.

In an era of diminished federal funding, the partnerships represent a new way of stimulating markets in places where the U.S. is interested in improving economic stability and social services. They also reflect the energy and desire of this young team to challenge traditional ways of doing business.

“They did an incredible job of reorienting the thinking of financial institutions in Africa. When they sit down with a group and lay out a solution, the group’s first reaction is, ‘That’s not how we do business here.’ They have to convince people to try different methods,” Moore said.

Fleming covers Latin America and Europe and Eurasia; Femal, works with Asia and the Middle East; Cotton covers Africa; and Gibbons oversees international transactions that can span multiple regions.

According to Cotton, the ultimate goal is a humanitarian one. “We want to see people in developing countries have access to finance so they can improve their lives. We want to know that people have improved nutrition, health, and education because they have access to loans,” he said.