Millennium Challenge Corporation
April 25, 2023
Hybrid meeting: via Webex and at the Millennium Challenge Corporation (MCC)
|9:00 – 10:00am||Call to Order and Roll Call
Alex Dixon, Practice Lead/Senior Director, Finance, Investment and Trade
|Overview of Agenda
Valérie Vencatachellum & Thierry Tanoh, Advisory Council Co-Chairs
Cameron Alford, Vice President, Department of Compact Operations
|Discussion with MCC Leadership
Alice Albright, Chief Executive Officer
|10:00 – 10:15am||Coffee Break|
|10:15 – 10:45am||Readout from Energy and Climate/Blended Finance Subcommittee Meetings and Discussion
Kimberly Heimert, Advisory Council Subcommittee Chair
|10:45 – 11:45am||Member Feedback/Discussion: Indonesia II Compact – MSME Finance Case Study
Stephen Gaull, Senior Operations Advisor/Finance, Investment and Trade
|11:45 am – 12pm||Closing Remarks/Public Comment/Housekeeping
Alex Dixon, Practice Lead/Senior Director, Finance, Investment and Trade
MCC’s Chief Executive Officer, Alice Albright, hosted a discussion with MCC staff and Advisory Council members about MCC@20, centering on its climate emphasis, geographic footprint, accountability, and strategies for achieving its goals. MCC summarized the meetings of its subcommittees and presented its potential investments to help micro-, small-, and medium-sized enterprises (MSMEs) in Indonesia. The advisory council members provided feedback that centered on the following themes.
- Members were concerned that the compact education and training be long-term and effective.
- They wanted to ensure that MCC held the banks accountable for lending to businesses which are not traditionally in their business plan.
- They emphasized climate, country-ownership, solid analysis, the digital economy, simplification, messaging, and prioritizing disenfranchised groups like women.
- They said MCC has a strong and large program and so it needs to 1) expand its impact by sharing its experience with other multilateral and private sector institutions and 2) use its funds to de-risk climate projects of impacted countries.
Welcome, Call to Order and Overview of the Agenda
Alex Dixon welcomed everyone, called the meeting to order, and introduced Thierry Tanoh. The roll call was taken online and in person.
Thierry Tanoh thanked members for feedback on the Indonesia case and outlined the agenda.
Cameron Alford highlighted MCC’s 23 active partner country portfolios in Asia and Africa.
Discussion with MCC Leadership
Alice Albright reflected on MCC@20: MCC has made an excellent start and hopes to work in a greater geographic footprint, in climate, with more speed, and in partnership with the private sector in the next twenty years.
P11 asked for more information about the climate.
Jonathan Richart said that for many years, MCC has focused on climate, engaging private investment through creative finance mechanisms like Climate Finance Plus.
P2 asked what the rationale is for MCC’s proposed geographic expansion.
Alice Albright said expanding the footprint is about the need and the tool set that MCC has. MCC can affect transformative change in key sectors that are challenging to countries. MCC has a rigorous process and will continue to go deep rather than overly wide. The new guidelines will only open about ten more countries to MCC.
P3 asked 1) What will MCC do with countries which backslide on their scorecards? 2) Is Alex Dixon the point of contact for the Council? 3) How can we assist MCC to facilitate coordination when we can?
Alice Albright said when countries have coups, we may suspend or terminate. We watch countries who have issues. She noted that MCC would like specific ideas about what part of what agency’s pipeline we could coordinate with and said Alex Dixon is the point of contact.
P4 asked how MCC creates a strategy that combines climate and development, is country owned, and rests on solid analysis. She encouraged MCC to take some of the risk of green investments. She also said paying for results encourages private investment.
Alice Albright thanked P4 and said that integrating climate with development is very natural because countries identify climate vulnerabilities when they describe their development needs. Then MCC focuses on adaptation. Paying for Results is an important part of how MCC works. She asked members about opportunities for public financing of P for R projects.
Jonathan Richart said MCC integrates climate adaptation and data analysis into all its projects and that bond guarantees are all subnational at this point.
Alex Dixon noted that MCC’s countries are not generally investment grade, so sovereign issuances would not be practical. MCC helps identify funds, gives technical assistance, and offsets costs as much as is practical and realistic.
P5 asked about MCC’s gender inclusion strategy and how the Council can support it.
Alice Albright said gender inclusion is a long-term priority and encouraged Council input.
P6 agreed with Alice and added that MCC is working on 1) early analysis, 2) sectoral guidance, and 3) accountable entity guidelines, including a broader participation on MCC boards.
P7 thanked MCC for its work on climate finance and sustainability and said he would like to create a platform for MCC to engage with the private sector in this. He noted that the digital economy needs to be a priority for MCC.
P7 also noted that MCC has a strong and large program and needs to share its experience with other multilateral and private sector institutions.
Alice Albright said MCC sees interest in technology, and she welcomed collaboration with the Department of Commerce. Leveraging and scaling are relevant. MCC wants country input but also compatibility, especially as MCC’s expands. She asked for specific ideas and opportunities.
Readout from Energy and Climate/Blended Finance Subcommittee Meetings and Discussion
Kimberly Heimert summarized the content of both meetings which is contained in Appendix 1.
P1 asked if it was a model that countries would generally accept.
P3 asked if MCC would want to replicate the model because 1) of the liability and high cost of transactions and 2) if the US government might not get the credit with the local.
Alex Dixon said that MCC was grappling with those three questions. The cost of the trust is being discussed. We must analyze it on a country-by-country basis. The team was trying to create a reflow of money so there is a future benefit. If it can be replicated, then other donors and the government could add money to it. It might grow large enough that the cost for MCC could become reasonable. High cost does not make sense from a cost perspective. But from a development perspective, MCC could accept higher costs if the benefit continues. It is an ongoing discussion. The Council comments helped drive the discussion internally and externally.
Alice Albright said that getting credit is important, but the government will not be associated with something it does not control, so MCC needs to know if more investors will get involved.
Alex Dixon introduced the Indonesia II Compact team. He said Council input is vital in such a large, innovative compact in a sophisticated, highly regulated, and highly developed country.
Member Feedback/Discussion: Indonesia II Compact—MSME Finance Case Study
Mike Sehzue recognized his colleagues Stephen Gaull, Jozefina Cutura, Nilufar Ahmad, and Rukmini Roy. He and Nilufar Ahmad presented the read-ahead information on the Indonesia II Compact, which are attached hereto as Attachment 2.
P5 (on chat) said that it may make sense to look at the World Bank Gender Equality for Growth analytical and advisory program launched in 2019 that supports the Indonesian government with recommendations for reforms and investments that close the gender gap. They may also have gender data that could inform MCC efforts.
P9 asked what pitfalls tend to happen in similar projects. P9 asked how this project is related to the government policy that banks increase the portion of their loan portfolio going to MSMEs.
Mike Sehzue said that training is sometimes ineffective in supporting growth. More relationship-building and lasting support is required. MCC hopes that its supply-side activity encourages these lenders to satisfy the MSME lending requirement.
Nilufar Ahmad said that MCC is looking for a higher growth potential of micro, small and medium enterprises. Most donors don’t work with micro or small businesses.
P3 encouraged MCC to remember that micro and small businesses are very different from medium enterprises. Financial underwriting is about data analytics. Loan officers like medium investments. MCC must help people solve the cost of capital.
P8 noted that MSME and women’s repayment rates are very high; training at FSPs and coordinating between the trainers are important. P8 questioned if waiting for a pipeline to be in place before disbursement to the banks might create bottlenecks. P8 wondered if MCC might consider setting a floor or a ceiling after consultation with banks, so MCC has clear requirements.
Mike Sehzue agreed that MCC needs to write in the partners that can help in each sector. MCC is looking at its curriculum. The timing of lending and meeting our requirements is something MCC grapples with as well.
P8 said after trust is built, it may be quicker. Mike agreed.
P10 asked 1) how MCC decided on the structure and subsidy and 2) how the Dutch auction will work.
P11 encouraged MCC to keep guiding MCA so it continues training so there is impactful generational change.
Mike Sehzue said the Dutch Auction is one competitive mechanism under consideration.
Nilufar Ahmad said that MCC has joint training to reduce household gender disparities and encourages women to work together and have their own bank accounts.
P12 questioned if there was an opportunity for these funds to go into the circular economy and to target climate objectives so there was a bigger impact.
P2 encouraged MCC to use more precise language about targeting small businesses (not MSMEs) and to focus its efforts on businesses with potential to grow. They asked MCC to consider a Pay for Results approach, more modern training delivery methods, and Peer to Peer networks.
Mike Sehzue noted that MCC is working on implementation. It is training financial service providers. We had discussions with local businesses. Climate is a focus too.
Nilufar Ahmad noted sustainable agriculture gets the premium price in the market. Sustainable practices with green certificates give a better price in the market. Indonesia has digital platforms to train small businesses, but not in rural areas. But after small businesses get training, they can access digital platforms. To help small businesses take the first step, then they can access the digital training themselves.
P13 asked how MCC will work on subnational level.
P14 asked how MCC can ensure that the banks are lending to those who are traditionally excluded from access to financing.
P15 asked about Islamic banking considerations related to the on-lending window.
P2 asked about banking considerations relating to Islamic banking.
Mike Sehzue said MCC is coordinating with local partners in each of the provinces since the processes are different in each. He described the budget of the compact. Zero percent interest and other aspects of the program have been attractive to some banks, including to Islamic financing programs. We are grappling with how to implement the program to meet its goals with speed.
Nilufar Ahmad noted that people were open to it, saying that money does not have a religion.
P16 noted that the portion of technical assistance in the budget is very high. They encouraged MCC to ensure that the loans are going to the target population.
P3 asked what the cost of capital is in the capital and in the provinces.
P8 said the requirements of participating in the program ensure that lenders lend to the target population. In terms of the proportion of training to lending, they noted that the $50 million should be revolving and increasing given proper training and mentorship.
Mike Sehzue said MCC will focus on encouraging banks to take more risk while keeping the efficiency it is seeking. Working capital averages 12% in the Jakarta area. The government People’s Credit Program charges about 6% interest. Many financial services are not available in the provinces. Growing small businesses is very difficult because of that.
Ten members provided written feedback which were conveyed to the presenters prior to the meeting. The presenters subsequently integrated the feedback into their presentation and addressed the audience’s questions and concerns.
Concluding Remarks and Adjournment
Alex Dixon summarized the discussion and encouraged Council members to submit comments. He said MCC would make the minutes available in the next three weeks and send a post-survey. There was no public comment. He adjourned the meeting.
Minutes prepared by: TransPacific Communications
MCC Advisory Council Members Present
- Andrew Gunther (In-Person)
- Ann Hudock
- Daniel Tomlinson (In-Person)
- Darci Vetter
- Darius Teter
- Deirdre White (In-Person)
- Dr. Guevera Yao (In-Person)
- Jeff Montera
- Jeffrey Jackson
- Joan Larrea
- Joshua Powell
- Kate Ahern
- Kathryn Karol
- Kimberly Heimert (In-Person)
- Milton Lore
- Nancy Lee
- Olu Verheijen
- Peter Choharis (In-Person)
- Randall Kempner (In-Person)
- Rees Mwasabili
- Roland Pearson (In-Person)
- Shehnaz Rangwala (In-Person)
- Thierry Tanoh (In-Person)
- Tracy Washington
- Valerie Vencatachellum
- Alice Albright, CEO, MCC
- Jon Richart, DVP, Department of Compact Operations
- Alford Cameron, VP, Alex Dixon, Finance Investment and Trade
- Heather Hanson, MD, Department of Compact Operations
- Alexander Dixon, Senior Director, Finance Investment and Trade
- Bahgi Berhane, Program Officer, Finance Investment and Trade
- Sheena Cooper, Program Officer, Finance Investment and Trade
- Mike Sehzue, Sr. Program Officer, Finance Investment and Trade
- Stephen Gaull, Sr. Operations Officer, Finance Investment and Trade
- Deidra Fair James, Director, Finance Investment and Trade
- James Hallmark, Director, Finance Investment and Trade
- Rukmini Roy, Director, Finance Investment and Trade
- Zaidoon Khouri, Director, Finance Investment and Trade
- Nebiyou Girma, Senior Director, Energy
- Nilufar Ahmad, Director, Gender, and Social Inclusion
- Bruce Hamilton
- David Kassebaum
- Douglas Fairfield
- Eugene Cho
- Jennifer Winsor
- Joshua Powell
- Jozefina Cutura
- Kate Ahern
- Katerina Ntep
- Kobby Amponsah
- Martha Bowen
- Sudarshan Goop
Summary of Read out of Subcommittee Meetings
At the last meeting, the Energy and Finance Subcommittee discussed the Joint Green Finance Pilot Program. Jason Bauer and Doug Mason led the discussion. The initiative is to provide technical assistance for the governments of Indonesia, Mozambique, and Zambia to use green or blue bonds and other green financing structures. The Council said that green financing is the same as other financing, but it requires certifications and to market it as green. So, MCC needs to focus on those things and on helping them find investors who are interested in climate. MCC should partner with USTDA on project development, with the DFC on bankable projects and needs financing or guarantee of debt, and the World Bank Global Partnership for Social Accountability. The subcommittee members with connections in these agencies will work with MCC to help build bridges to cooperation.
She said the subcommittee on Blended Finance focused on the Solomon’s Island Threshold Program Case Study. ANZ which requires a fully funded government guarantee to provide the financing for a resort. MCC is considering providing cash security for the guarantee where the money is funded into a trust as seed money. The money would first guarantee the loan for the Solomon Island’s resort, and it would then be used for investment in other pre-determined projects. Solomon Island and MCC would decide on the parameters. They would be in the same vein as the resort investment—so they would fit within the current compact. The reasons for the trust structure are 1) recycle funds if there is no call on the guarantee, 2) encourage other funders to invest in the trust. The subcommittee’s role was to give advice. It appreciated the creativity but was quite concerned about the cost of setting up and administrating the trust. The transaction costs would be high in comparison to the seed amount of the trust. It would not be useable with other countries, so it would need to be replicated each time it was used. And there would be liability involved in having the money left even if MCC was no longer involved in its administration. The idea was very creative—and creative ideas make positive changes.