Providing financial aid or support with the aim of promoting economic and social policy entails subsidization, and that general concept is introduced in this session. Some missions require a larger federal footprint while others might benefit from more private involvement. There are five basic platform options for delivering intended subsidies and they are designed to be responsive to the distinction. Delivery platforms should be evaluated and compared in terms of structure, taxpayer risk and cost, magnitude of obligation, difficulty of management, need for partnership, level of control, extent of mission impact and other attributes – including whether the proposed credit product is suitable to the beneficiary. A range of decisions is associated with product design including: amount, rate, term, amortization, credit risk and demography. Finally, this session focuses on the functioning of the combined product and platform over time and considers metric adjustments to ensure the portfolio reflects market conditions. GCFP provides a proprietary calculator that incorporates the product design, delivery platform and program performance assumptions into a single set of forecasts for both the agency and its lending partners or grantees. Objective is to ensure delivery platform and product design minimize taxpayer risk/cost and maximize prospects for mission accomplishment.
Subsidy
Notion of subsidy since the very nature of government provision of credit entails some form of subsidization, regardless of expected costs
- High-level discussion of various economic and financial concepts that can be considered in measuring subsidy
- Identifying the financial benefits of the subsidization, and showing how and to whom they are distributed through the deal structure
Delivery Platform
- Metrics that define the nature, size and location of credit needs
- Natural partners for each of the platforms: private lenders and service providers, state and local agencies and organizations
- Continuum of options for delivering subsidies: e.g., grants, direct loans, credit guarantees, insurance, credit enhancements, tax credits
Elements of Product Design
- Metrics-based decisions to ensure suitability of product to targeted needs and policy objectives
- Rudimentary forecasts of annual activity for the agency
- Identifying program operating and credit loss expenses for the agency
- The complete program forecast: the agency, participating lender or grantee
- Adjusting program for changes in market conditions; potential for program evolution or even eventual sunset
Interactive
- Identifying a credit gap of national importance and the metrics used to demonstrate program effectiveness in addressing.
- Best credit product. Problem: Develop the best product to fit a gap within a given subsidy and administrative budget.
Lecture Slides
Session 2 Slides: Considerations in Program and Product Design (PDF)
Charts
Chart 2.1: How do we Minimize Risk and Costs While Maximizing Impact?
Chart 2.2: Calculation of the Benefits EX-IM Bank
Chart 2.3: Calculation of the Benfits of the SBA 7a
Chart 2.4: Calculation of the Benefits of the CDFI Fund NMTC
Chart 2.5: Why is There a Credit Gap?
Chart 2.6: Examples of Different Kinds of Lenders
Chart 2.7: “Quick and Dirty” Unit Cost Analysis
Chart 2.8: Product Delivery
Chart 2.9: Platform Type
Chart 2.10: Leveraging the Platform
Chart 2.11: BUT - Downside Risk
Chart 2.12 Downside Risk
Chart Files: Charts for Session 2 (XLSX); Charts for Session 2 (PDF)
