United States International Development Fincance Corporation

Traditionally, international development has been considered a government responsibility. Developed countries loan large sums of money to developing countries. Debt accumulates, developing countries become reliant on loans and corrupt leaders benefit—not the people. State-controlled development has become infamous for its ineffectiveness and harmfulness over the years. The new U.S. International Development Finance Corporation (USIDFC) introduces a new model: stimulate development through private sector investment and avoid the red tape, corruption and wastefulness of country-to-country loans.

The New U.S. Development Model

In 2019, the BUILD Act created the U.S. International Development Finance Corporation to expand upon the development work of the U.S. Agency for International Development (USAID) and the Overseas Private Investment Corporation (OPIC). Its purpose is to include the private sector in the United States’ international development mission. It can provide loans and political risk insurance, insurance that protects investments from political instability to its corporate partners. Thanks to the services it provides, it can collect service fees from the corporations. This means USIDFC operates without a cost to U.S. taxpayers.

USIDFC combines government oversight with private sector funding to create a new U.S. international development model. Although still in its infancy, the U.S. International Development Finance Corporation has introduced some ambitious projects and adopted some from USAID and OPIC. The projects cover a wide variety of development issues such as healthcare, technology, poverty and female empowerment. Such issues often intertwine, as a solution for one can often impact another.

Alleviating Poverty in Chad and Mexico

For example, USIDFC’s work to bring electricity to Chad will help alleviate poverty. Currently, only 8.8% of Chad’s population has access to electricity. Such limited access impairs education, business growth and overall quality of life. Partnering with FinLux Ellen Sarl, a French corporation, USIDFC will provide a $10 million loan for the distribution of solar-powered appliances to Chad. The project will:

  1. Provide electricity to schools, businesses, and medical clinics
  2. Achieve UN Sustainable Development Goal number seven: Affordable and Clean Energy
  3. Achieve UN Sustainable Development Goal number eight: Decent Work and Economic Growth

Through a similar project in Tanzania by the Millennium Challenge Corporation, a farmer increased her daily earnings by 504% in two years. Such a drastic increase in wages shows the powerful effects of electricity-focused development projects on poverty.

Another example of the U.S. International Development Finance Cooperation’s work to alleviate poverty is occurring in Mexico. Mexico suffers from a poverty rate of nearly 50%. USIDFC is partnering with KapitalMujer to provide $5 million in microloans to women-owned businesses in southern and central Mexico. This project will give low-income women the necessary funds to start or continue their small businesses.

Although a heavily disputed development model, microfinancing has proved beneficial in Bangladesh and China. Microloans will not drastically increase the standard of living; however, the loans will raise many families out of poverty. Ultimately, this project will give impoverished women access to funds that would otherwise be unavailable to them due to their high risk. This money will allow them to invest in their businesses and increase their income.

Different Development Models

The motivation behind the U.S. International Development Finance Corporation’s creation should not be overlooked. It is a response to China’s Belt and Road Initiative (BRI). However, China’s state-to-state development model and the United States’ new corporation-to corporation development model are fulfilling different needs. China is investing large amounts into infrastructure in over sixty countries. U.S. International Development Finance Corporation is targeting small and mid-sized companies to grow developing countries’ economies from the inside.

International politics aside, both programs are filling gaps in places where investment is lacking. Both countries are actively trying to increase economic growth in developing countries, which will decrease poverty rates. Whether the countries’ motives are altruistic or geostrategic, frankly, does not matter. The global poverty rate will be positively affected either way.

Lauren Clouser
Photo: Flickr

Credit Access in Iraq
There is a plethora of obstacles to overcome when examining the aspects of financial stability in the Middle East, and Iraq in particular. Iraq has an institution called CHF Vitas Iraq geared towards restoring the economy and producing monetary growth in the nation.

Forming a Solid Foundation

“In Iraq, for example, only 11 percent of adults hold an account at a formal financial institution.” CHF Vitas Iraq is doing a tremendous job of, “offering financial services to families and the owners of micro and small businesses, and by supporting homeowners in home improvement and restoration.”

This type of commitment can not only better the lives of the individuals receiving credit access in Iraq, but can also provide the groundwork for an ever-changing economy in the future.

The work CHF Vitas Iraq has invested into the community is incredible. The organization continues to promote and support small businesses as well as supply aid to the region. “They are a subsidiary of Global Communities, which is a non-profit development organization that partners with local stakeholders across a range of topic areas.”

Micro-financing Changing Iraq’s Landscape

In fact, “since its inception, CHF Vitas Iraq has become the largest microfinance institution in Iraq with the largest market share, disbursed more than $1 billion in loan capital, grown an outstanding portfolio of more than $74 million (as of August 2017) and maintained a 98 percent on-time repayment record.”

With the assistance provided by this group, citizens are becoming increasingly stable and proud of themselves as they now have both the purpose and ability to follow their dreams. Aid and assistance comes at a great time for Iraq since they have been experiencing much conflict over the past several years.

The Overseas Private Investment Corporation is working to issue relief in the areas of Iraq that are dealing with the most conflict.

Positive Results of Credit Access in Iraq

There was a survey implemented in the region that represented credit access in Iraq for the population, and “the survey revealed a significant gap between Iraqi citizens who borrowed formally (4 percent) and those who did so informally (65 percent).”

When one notices the impact credit has on people’s lives, it allows a better understanding of how difficult it is to live without access to such a resource. Many Middle Eastern countries do not have a well-developed financial system, so with the ability for these loan companies to provide credit access in Iraq for a majority of the citizens, there can only be positive results on the monetary factors of the economy.

There is still much that needs to be accomplished for this country to become more stable in an economic aspect as well as maintain strength to persevere during conflict. But, if ISIS can be controlled and micro-finance loans can continue to be distributed in a proper manner, then credit access in Iraq will produce many opportunities for the citizens and hopefully lead to a stronger economic system.

– Matthew McGee

Photo: Wikimedia Commons

OPIC Makes $5 million Commitmen

With the help of the Overseas Private Investment Corporation’s (OPIC) recent $5 million commitment to support the UCF (Unreasonable Capital Fund), the young venture capital firm will be able to invest in and support what it calls the “greatest entrepreneurs of our time.” These entrepreneurs address the foundations of poverty in emerging countries by creating profitable businesses.

Unreasonable Capital will use the OPIC funds for early-stage investments in businesses in developing countries that will ultimately enable large segments of their populations to rise into the middle class. The focus of the UCF will be on start-up companies in these sectors: energy access, financial technology and mobile phone applications in agriculture and artisan-driven fashion.

The intent of the UCF investments is to develop self-sustaining, profitable businesses that improve the lives of people in Latin America, India, Asia and Africa. Unreasonable Capital works exclusively in emerging markets. It focuses on clean energy, financial technologies, innovations in agriculture and artisan-driven fashion because it believes these business sectors can best make inroads into long-term poverty in those markets.

The firm measures the success of its investments on both financial returns and social impact. It wants to work with entrepreneurs in emerging markets who are intent on solving significant social or environmental problems in a way that their social impact is “baked into their profit model.”

Unreasonable Capital offers start-ups not only financial assistance but also access to best practices and mentors through the firm’s global network of more than 200 partners and 250 mentors. The partners include The World Bank, Google and Nike. Mentors include the founder of WordPress and the chief marketing officer of Unilever.

Unreasonable Capital received its $5 million commitment from OPIC through the institutions’ Innovative Financial Intermediaries Program (IFIP). The program is intended to help small financial vehicles invest with the aim of developing businesses that are innovative and have a social impact.

OPIC, established in 1971, is the development finance institution of the US Government. It marshals private capital to address critical development challenges, especially in emerging markets. By doing that, OPIC advances US foreign policy and national security interests.

OPIC is self-sustaining. Its projects produce no net cost to U.S. taxpayers. In fact, it normally generates income and helps reduce the federal deficit. It does so through supporting projects such as power plants in Sub-Saharan Africa, low-income housing in Latin America and food processing plants in Eastern Europe. OPIC’s $5 million commitment to support the UCF is just one more example of the institution fulfilling its mission.

Robert Cornet

Photo: Flickr