Thursday, November 7, 2013

U.S. Overseas Private Investment Corporation (OPIC) – Effective and efficient impact investing

OPIC’s approach to international development is effective and efficient: Effective because we operate with commercial discipline, and efficient because we generate income for the American taxpayer and the federal budget.”, writes Elizabeth L. Littlefield (President and CEO) in OPIC’s 2012 annual report.




Let’s have a closer look at what OPIC is and what it does.


About OPIC

OPIC is the U.S. Government’s development finance institution. Its 220 employees facilitate U.S. private investment in developing countries and emerging market economies.

OPIC refers to its investment practice as “impact investing”: It aims to transform capital into answers for common challenges such as access to education, financial inclusion, housing, healthcare, and climate change. At the same time, OPIC looks after generating sufficient returns on its investments to make the profitable.

As a consequence, the agency operates on a self-sustaining basis at no net cost to American taxpayers. Historically, every dollar of OPIC support has leveraged, on average, 2.60 USD in private sector investment.

OPIC supports projects in 103 countries in Sub-Saharan Africa, Middle East and North Africa, Asia, and Latin America. In terms of sectors, OPIC works in renewable resources (namely solar, wind, and geothermal power), agriculture (for example sustainable food production and clean water), infrastructure, SME lending, healthcare.


Development criteria

OPIC’s development matrix measures the developmental impact of projects across five key categories:

  • Jobs and human capacity building (How many and which type of jobs will the project create?)
  • Demonstration effects (Will the project result in the introduction of new products, services, business practices or production processes in the host country? Will it have a positive influence on the local regulatory or legal environment?)
  • Host country impact (Will the project procure local goods and services, generate export earnings, local taxes or other fees?)
  • Development reach (How many local people will benefit from the project?)
  • Environmental and community benefits


Products

OPIC’s main products are

  • political risk insurance (covering inconvertibility of currency, expropriation, and political violence in the form of war, revolution, insurrection, etc.),
  • investment guarantees (covering risk of default for any reason and compensating principal and (fixed or floating rate) interest), and
  • direct loans.

Investment guarantees and direct loans are together referred to as “investment financing”. Such financing is only available for projects involving significant equity and/or management participation by U.S. businesses.


Refinancing

OPIC refinances its operations either through appropriations (i.e. direct allocation of federal funds to OPIC) or through borrowings from the US treasury. OPIC’s engagements are backed by a public fund and, in addition, pledged with full faith and credit of the United States of America.


OPIC Financials



OPIC’s political risk insurance business is stable; its investment financing business fluctuates significantly over time.

Direct loans outstanding have more than doubled since 2008.

Net income has experienced a stable increase on average in recent years.





Resource:

  • www.opic.gov
  • OPIC Annual Report 2012