On September 28, USAID/El Salvador signed agreements with three commercial banks in El Salvador to offer more than $53 million in partial loan portfolio guarantees under USAID’s Development Credit Authority (DCA) program. The guarantees reduce risks to banks so they can increase lending to small and medium enterprises (SMEs) for renewable energy and energy efficiency measures. These partial guarantees cover 70 percent of principal repayment losses for clean energy loans and 50 percent for other SME loans. At least 20 percent of the covered loan portfolio of each bank is to be allocated to clean energy lending.
“Having allies like USAID becomes vital for us, because the DCA Guarantee program allows us to get closer to the SME sector that is responsible for most of the economic growth in El Salvador, and to those that pursue cleaner energy measures,” said Lorena Rubio, General Manager for Banco G&T Continental El Salvador, one of the participating banks
The initial guarantee limits for the three banks are $15 million for BAC Credomatic, $10 million for Banco G&T Continental El Salvador and $10 million for Banco Promerica El Salvador. After reaching their initial guarantee limits, the three banks will be able to compete for access to a reserve fund that can guarantee an additional $18 million. To cover the expected costs, the banks will pay the DCA an upfront fee of 0.15 percent of the maximum portfolio under their guarantee plus a utilization fee of 1.1 percent of the actual amounts lent with the guarantee.
The Climate Economic Analysis for Development, Investment and Resilience activity (CEADIR) provided extensive analysis and facilitation services to work out the agreements between USAID/El Salvador and the participating banks. A 2015 analysis noted that clean energy can meet El Salvador’s growing power demand at a lower cost than imported fossil fuels, while generating more employment and avoiding negative health and environmental impacts. The analysis also found that domestic banks had a limited understanding of clean energy technologies, business models, markets, and loan product types and characteristics needed for successful financing investments. Available loan products often required repayment in too short a time to match projected cash flows of the investments and due to misperceptions of risks, had high collateral requirements and interest rates.
To help reduce these constraints, CEADIR held discussions with senior bank managers to make the case for clean energy lending as an important new product line. In addition, it offered training to interested banks on how to assess markets for clean energy lending and on relevant technologies, business models and appropriate loan products. These trainings were built around the Clean Energy Lending Toolkit which is available in English, Spanish and French. CEADIR also joined a loan guarantee assessment trip with DCA and USAID/El Salvador representatives, prepared analysis to support DCA Credit Review Board decision-making, and is currently providing technical assistance and training to support the development of DCA guarantees for clean energy lending in Guatemala and Honduras.
Santiago Enriquez has 20 years of experience designing and implementing clean energy, sustainable landscapes, and environmental projects in more than 15 developing countries. His work for CEADIR has included technical assistance to commercial banks on clean energy lending in Central America, cost-benefit analyses on charcoal use and its alternatives in Malawi and Zambia, and a cost-benefit analysis of climate-smart cacao production practices in Ghana. He holds a Master’s degree in Public Policy from Harvard University.
Dr. Eric Hyman is an Economist in the USAID Economic Growth, Education, and Environment Bureau’s Economic Policy Office. Dr. Hyman was previously Economist and Environmental Officer at the U.S. African Development Foundation and Chief of Program Evaluation at EnterpriseWorks Worldwide/Appropriate Technology International. He has a Ph.D and M.R.P in Environmental Planning from the University of North Carolina at Chapel Hill and a B.A. in Economics and Environmental Science from the University of Virginia.