[House Report 104-715]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-715
_______________________________________________________________________


 
                          MICROENTERPRISE ACT

                                _______
                                

 July 29, 1996.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


 Mr. Gilman, from the Committee on International Relations, submitted 
                             the following

                              R E P O R T

                        [To accompany H.R. 3846]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on International Relations, to whom was 
referred the bill (H.R. 3846) to amend the Foreign Assistance 
Act of 1961 to authorize the provision of assistance for 
microenterprises, and for other purposes, having considered the 
same, report favorably thereon without amendment and recommend 
that the bill do pass.

                               I. Purpose

    H.R. 3846, the ``Microenterprise Act,'' amends the Foreign 
Assistance Act (``FAA'') to provide two new authorities for the 
provision of microenterprise loans and microenterprise grants. 
Specifically, the bill amends an outdated section of the FAA to 
authorize loans and guarantees to credit institutions to expand 
the availability of credit to micro- and small enterprises 
along with training for lenders and entrepreneurs. The bill 
also allows the provision of grants, particularly through 
Private Voluntary Organizations and Non-Governmental 
Organizations with a recommendation that one half of this 
credit assistance be directed at very poor people, particularly 
women, through loans of $300 or less.

                             II. Background

    Testimony from both the private sector and the 
Administration verified the importance of microenterprise 
programs in enabling the poorest of the poor to become 
entrepreneurs. Loan repayment rates of up to 98 percent have 
been achieved.
    In moving this bill, the Committee recognizes Dr. Muhammad 
Yunus and his successful Grameen Bank in Bangladesh. Today, the 
Grameen Bank is one of the largest banks in Bangladesh. It has 
served over two million borrowers and lent over $1 billion. 
Most of the loans are small--under $300--and 94 percent of the 
borrowers are women. The Bank represents one of the most 
successful foreign assistance programs yet designed to 
eliminate poverty among the poorest of the poor. Most 
importantly, Grameen's borrowers have repaid the bank at a 98 
percent repayment rate.
    The Committee notes that the microenterprise development 
programs do not center on the Grameen Bank. Bolivia's BancoSol 
grew from nothing to serve over 40% of all banking clients in 
Bolivia. BancoSol and its microenterprise lending program now 
borrows funds on the New York market to continue its service to 
Bolivia's poor. Hundreds of other microenterprise institutions 
operate around the world, including hundreds of such programs 
here at home.

                         III. Committee Action

    The Committee on International Relations heard testimony on 
the ``Value of Microenterprise Development'' on June 27, 1995. 
The Committee received testimony from the Administration given 
by Ms. Ann Van Dusen, Senior Deputy Assistant Administrator for 
Global Programs, Field Support and Research at the Agency for 
International Development. The Committee also received 
testimony from major microenterprise groups including Mr. 
Michael Chu, President and CEO of ACCION International, Dr. 
John Hatch, Founder and President of the Foundation for 
International Community Assistance (``FINCA'), and Dr. Muhammad 
Yunus, Managing Director of the Grameen Bank. All witnesses 
strongly endorsed the value and need to strengthen programs to 
support microenterprise development.
    On Thursday, July 18, 1996, Chairman Gilman introduced H.R. 
3846, the Microenterprise Act. The bill was referred to the 
Committee on International Relations. The bill was also 
cosponsored by the Ranking Democratic Member of the Committee, 
Mr. Hamilton, along with Mr. Gejdenson and Mr. Houghton. On 
July 24, 1996, the Committee met in open session and by a 
unanimous consent agreed to file a favorable report on H.R. 
3846.

          IV. Roll Call Votes and Amendments and Final Passage

    The Committee agreed to a unanimous consent request to 
report the bill to the House with the recommendation that the 
bill do pass.

                     V. Section-by-Section Analysis

                         section 1. short title

    This section establishes the title as the ``Microenterprise 
Act.''

       section 2. micro- and small enterprise development credits

    This section replaces the existing section 108 of the FAA 
which has become outdated due to changes in credit reform 
legislation. The new section would govern the provision of 
micro- and small enterprise loans, guarantees and training for 
lenders and entrepreneurs. Subsection (a) sets forth a four-
part policy, that Congress finds:
          (1) the development of micro- and small enterprise, 
        including cooperatives, is a vital factor in the stable 
        growth of developing countries and in the development 
        and stability of a free, open, and equitable 
        international economic system;
          (2) it is, therefore, in the best interests of the 
        United States to assist the development of the private 
        sector in developing countries and to engage the United 
        States private sector in that process;
          (3) the support of private enterprise can be served 
        by programs providing credit, training, and technical 
        assistance for the benefit of micro- and small 
        enterprises; and
          (4) programs that provide credit, training, and 
        technical assistance to private institutions can serve 
        as a valuable complement to grant assistance provided 
        for the purpose of benefiting micro- and small private 
        enterprise.
    Subsection (b) authorizes the President to provide loans 
and guarantees to credit institutions and training for lenders 
and entrepreneurs to expand access to credit and improve the 
prospects for loan recipients to success in their businesses.
    The Committee strongly urges the AID Administrator to focus 
these ``section 108'' loans, guarantees, and training programs 
on poverty alleviation for the poorest of the poor. This focus 
should include the provision of at least half of initial loans 
in amounts of $300 or less in 1995 U.S. dollars and a 
substantial portion of initial loans averaging $150 or less. At 
least half of the training programs should also focus on 
lenders and entrepreneurs in the very poor $300 average loan 
sector of the population.

        section 3. microenterprise development grant assistance

    This section amends the FAA, adding a new section 129 
authorizing the President to provide grant assistance for 
credit and other assistance for micro enterprises in developing 
countries. Subsection (a)(2) requires this assistance to be 
provided particularly through: (1) U.S and indigenous PVOs; (2) 
U.S. and indigenous credit unions; and (3) other indigenous and 
non-governmental organizations.
    Subsection (a)(3) requires that approximately one-half of 
the credit assistance authorized must be used for poverty 
lending programs that meet the very poor member of society, 
particularly poor women. The subsection also strongly 
recommends that this half of credit assistance should be sued 
to provide loans of $300 or less in U.S. 1995 dollars to such 
poor members of society. The Committee notes that the AID 
Administrator wrote a June 14, 1994, letter to Rep. Gejdenson 
stating the following:

          In regard to poverty lending, I want to assure you of 
        USAID's commitment to increasing the share of resources 
        devoted to poverty lending programs or the poverty 
        lending share of mixed programs. In this context, 
        poverty lending programs are those which: Meet the 
        needs of very poor members of society, particularly 
        poor women; Provide loans smaller than a reference 
        point of $300 in 1994 dollars.
          We are committed to allocating half of all funding 
        for microenterprise activities in support of such 
        poverty lending programs by the close of fiscal year 
        1996.

     One week later, AID launched its ``Microenterprise 
Initiative'' to raise microenterprise funding from $80 million 
in fiscal year 93 to $140 million in fiscal year 95, with 
``half of all its support for microenterprise programs to 
poverty lending programs or the poverty lending portion of 
mixed programs by the end of 1996.'' While this legislation 
requires approximately one-half of the credit assistance to be 
focused on poverty lending, the Committee expects AID to 
maintain the full commitment made under its Microenterprise 
Initiative. The Committee also expects AID to make the average 
initial loans made under this authority at the $150 level or 
below.
    Subsection (a)(4) recommends that the Administrator should 
support technical support for field missions, institutional 
development and information sharing.
    Subsection (b) recommends that the Administrator should 
support a monitoring system that expresses goals in objective 
and qualified form, performance indicators to assess 
achievement and recommendations for adjustments to enhance the 
sustainable development impact of such assistance, particularly 
the impact of such assistance on the very poor, particularly 
women.

                    VI. Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.
    Among the principal oversight activities which contributed 
to the Committee's formulation of H.R. 3846 were extensive 
hearings and briefings on current microenterprise programs, on 
the activities of other countries on microenterprise programs 
and on other issues pertinent to microenterprise programs that 
are under the jurisdiction of the Committee and ongoing 
consultations between the Committee members and staff and 
executive branch officials.

       VII. Committee on Government Reform and Oversight Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

            VIII. New Budget Authority and Tax Expenditures

    The Committee adopts the cost estimate of the Congressional 
Budget Office, set out below, as its submission of any required 
information on new budget authority, new spending authority, 
new credit authority, or an increase or decrease in the 
national debt required by clause 2(l)(3)(B) or rule XI of the 
House of Representatives.

                   IX. Inflationary Impact Statement

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the Committee estimates that 
H.R. 3846 will have no significant inflationary impact on 
prices and costs in the operation of the national economy.

              X. Congressional Budget Office Cost Estimate

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives and section 423 of Public 
Law 104-4, the Committee sets forth with respect to H.R. 3846 
the following estimates and comparison prepared by the Director 
of the Congressional Budget Office under section 403 of the 
Budget Act of 1974 and section 424 of Public Law 104-4:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 25, 1996.
Hon. Bejamin A. Gilman,
Chairman, Committee on International Relations,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 3846, the Microenterprise Act, as ordered 
reported by the House Committee on International Relations on 
July 24, 1996. The bill would codify the President's authority 
to provide assistance to very small enterprises in developing 
countries through grants and credits. The Administration is 
currently spending nearly $120 million for such activities from 
various appropriations. CBO estimates that spending for these 
purposes would continue under the bill at about the same level, 
assuming appropriation of the necessary funds.
    The bill would not affect direct spending and thus would 
not be subject to pay-as-you-go procedures under section 252 of 
the Balanced Budget and Emergency Deficit Control Act of 1985.
    The bill contains no intergovernmental or private-sector 
mandates as defined by Public Law 104-4 and would have no 
impacts on state, local, or tribal governments.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Joseph C. 
Whitehill for impacts on the federal budget, Pepper Santalucia 
for impacts on state, local, and tribal governments, and Army 
Downs for private-sector impacts.
            Sincerely,
                                          June E. O'Neil, Director.

                       XI. Jurisdictional Issues

    H.R. 3846, as reported by the Committee on International 
Relations, does not contain provisions which fall within the 
shared jurisdiction of other committees of the House.

       XII. Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italics, existing law in which no change is proposed 
is shown in roman):

                     FOREIGN ASSISTANCE ACT OF 1961

          * * * * * * *

                                 PART I

       Chapter 1--Policy; Development Assistance Authorizations 

          * * * * * * *
  [Sec. 108. Private Sector Revolving Fund.--(a) The Congress 
finds that the development of private enterprise, including 
cooperatives, is a vital factor in the stable growth of 
developing countries and in the development and stability of a 
free, open, and equitable international economic system. It is 
therefore in the best interests of the United States to assist 
the development of the private sector in developing countries 
and to engage the United States private sector in that process. 
In order to promote such private sector development, the 
President is authorized to establish a revolving fund account 
in the United States Treasury. All funds deposited in such 
account shall, notwithstanding any provision in an 
appropriation Act to the contrary, be free from fiscal year 
limitations.
  [(b) Of the funds made available under this chapter in each 
of the fiscal years 1986 and 1987, up to $18,000,000 may be 
deposited in this account. Such funds used in accordance with 
the policies and authorities of this section shall be in 
addition to other funds available for private sector activities 
under other authorities in this Act. Any reflows and income 
arising from activities carried out pursuant to this section, 
including loan repayments and fee income (as provided in 
subsection (e) of this section), shall be deposited into the 
revolving fund and remain available to carry out the purposes 
of this section. All funds in such account may be invested in 
obligations of the United States.
  [(c)(1) The agency primarily responsible for administering 
this part is authorized to use the funds maintained in this 
revolving fund account to furnish assistance in furtherance of 
the policy of subsection (a) on such terms and conditions as it 
may determine. Amounts in the revolving fund account shall be 
available for obligation for assistance under this section only 
to such extent as may be provided in advance in appropriation 
Acts. Assistance may be provided under this section without 
regard to sections 604(a) and 620(r) of this Act.
  [(2) Assistance under this section may be provided only to 
support private sector activities which--
          [(A) are consistent with the United States 
        development assistance policies set forth in section 
        102 of this Act and with the development priorities of 
        the host country;
          [(B) are the types of activities for which assistance 
        may be provided under sections 103 through 106 of this 
        Act;
          [(C) will have a demonstration effect;
          [(D) will be innovative;
          [(E) are financially viable;
          [(F) will maximize the development impact appropriate 
        to the host country, particularly in employment and the 
        use of appropriate technology; and
          [(G) are primarily directed to making available to 
        small business enterprises and cooperatives necessary 
        support and services which are not otherwise generally 
        available.
In determining whether an enterprise is a small business 
enterprise, the agency primarily responsible for administering 
this part shall take into consideration the enterprise's total 
net fixed assets and number of employees, together with the 
relevant definition utilized by the host country government and 
the International Bank for Reconstruction and Development and 
other international organizations.
  [(3)(A) Not more than $3,000,000 may be made available under 
this section to support any one project.
  [(B) Not more than 50 per centum of the financial support for 
any project may be provided under this section, and a 
substantial portion of the financial support for a project 
assisted under this section must be provided by sources within 
the host country.
  [(C) Not more than 20 per centum of the assets of the 
revolving fund account under this section may be used to 
support projects in any one country.
  [(D) In order to maximize the impact on institution building, 
loans under this section shall be made primarily to 
intermediary entities which provide necessary support and 
services for private sector activities.
  [(E) Loans under this section shall be at or near the 
interest rate otherwise available to the recipient.
  [(d)(1) If at any time the assets of the revolving fund 
account exceeds $100,000,000, the President shall remit the 
amount in excess of $100,000,000 to the United States Treasury.
  [(2) As used in this section, ``assets'' includes amounts in 
the revolving fund account plus the value of investments made 
with amounts from the fund plus the current value of 
outstanding obligations under loans under this section.
  [(3) In addition to the requirement of paragraph (1), at the 
end of any fiscal year, the agency primarily responsible for 
administering this part may determine that amounts in the 
revolving fund are sufficient to permit the remittance to the 
United States Treasury of an amount equal to a portion or the 
total amount of appropriated funds deposited in the revolving 
fund. Any such remittance shall be deemed to be a decrease in 
the appropriated funds in the revolving fund. After remittance 
has been made of an amount equal to the total amount of 
appropriated funds, the revolving fund shall consist and be 
deemed to consist entirely of nonappropriated funds.
  [(e) A fee may be charged, where appropriate, in carrying out 
activities with funds from the revolving fund authorized in 
this section. The amount of any such fee shall be determined by 
the agency primarily responsible for administering this part.
  [(f) In the event the revolving fund is terminated, all 
unobligated money in the fund at the time of such termination 
shall be transferred to and become part of the miscellaneous 
receipts account of the Treasury.
  [(g) As part of its annual congressional presentation 
documents submitted to the Congress, the agency primarily 
responsible for administering this part shall include a 
description of projects proposed to be funded from the 
revolving fund account for that fiscal year. To the extent that 
projects are proposed for funding which are not contained in 
the annual congressional presentation documents, at least 
fifteen days' advance notification shall be provided to the 
Congress in accordance with section 634A of this Act.
  [(h) Not later than December 31 of each year, the President 
shall submit a comprehensive report which details all projects 
funded under this section during the previous fiscal year, all 
reflows to the revolving fund account, a status report on all 
projects currently contained in the fund's portfolio. Such 
reports shall include, but not be limited to, information 
regarding numbers and kinds of beneficiaries reached, amounts 
and kinds of benefits provided by the funded projects to 
targeted populations, and a justification for projects within 
the context of the goals and objectives of the United States 
development assistance program.
  [(i)(1) To carry out the purposes of subsection (a), in 
addition to the other authorities set forth in this section, 
the agency primarily responsible for administering this part is 
authorized to issue guarantees on such terms and conditions as 
it shall determine assuring against losses incurred in 
connection with loans made to projects that meet the criteria 
set forth in subsection (c). The full faith and credit of the 
United States is hereby pledged for the full payment and 
performance of such guarantees.
  [(2) Loans guaranteed under this subsection shall be on such 
terms and conditions as the agency may prescribe, except for 
the following:
          [(A) The agency shall issue guarantees only when it 
        is necessary to alleviate a credit market imperfection.
          [(B) Loans guaranteed shall provide for complete 
        amortization within a period not to exceed ten years 
        or, if the principal purpose of the guaranteed loan is 
        to finance the construction or purchase of a physical 
        asset with a useful life of less than ten years, within 
        a period not to exceed such useful life.
          [(C) No loan guaranteed to any one borrower may 
        exceed 50 percent of the cost of the activity to be 
        financed, or $3,000,000, whichever is less, as 
        determined by the agency.
          [(D) No loan may be guaranteed unless the agency 
        determines that the lender is responsible and that 
        adequate provision is made for servicing the loan on 
        reasonable terms and protecting the financial interest 
        of the United States.
          [(E) The fees earned from the loan guarantees issued 
        under this subsection shall be deposited in the 
        revolving fund account as part of the guarantee reserve 
        established under paragraph (5) of this subsection. 
        Fees shall be assessed at a level such that the fees 
        received, plus the funds from the revolving fund 
        account placed in the guarantee reserve satisfy the 
        requirements of paragraph (5). Fees shall be reviewed 
        every twelve months to ensure that the fees assessed on 
        new loan guarantees are at the required level.
          [(F) Any guarantee shall be conclusive evidence that 
        such guarantee has been properly obtained, and that the 
        underlying loan as contracted qualifies for such 
        guarantee. Except for fraud or material 
        misrepresentation for which the parties seeking payment 
        under such guarantee are responsible, such guarantee 
        shall be presumed to be valid, legal, and enforceable.
          [(G) The agency shall determine that the standards 
        used by the lender for assessing the credit risk of new 
        and existing guaranteed loans are reasonable. The 
        agency shall require that there be a reasonable 
        assurance of repayment before credit assistance is 
        extended.
          [(H) Commitments to guarantee loans may be made by 
        the agency only to the extent that the total loan 
        principal, any part of which is guaranteed, will not 
        exceed the amount specified in annual appropriations 
        Acts.
  [(3) To the extent that fees are not sufficient as specified 
under paragraph (2)(E) to cover expected future liabilities, 
appropriations are authorized to maintain an appropriate 
reserve.
  [(4) The losses guaranteed under this subsection may be in 
dollars or in other currencies. In the case of loans in 
currencies other than dollars, the guarantees issued shall be 
subject to an overall payment limitation expressed in dollars.
  [(5) The agency shall segregate in the revolving fund account 
and hold as a reserve an amount estimated to be sufficient to 
cover the agency's expected net liabilities on the loan 
guarantees outstanding under this subsection; except that the 
amount held in reserve shall not be less than 25 percent of the 
principal amount of the agency's outstanding contingent 
liabilities on such guarantees. Any payments made to discharge 
liabilities arising from the loan guarantees shall be paid 
first out of the assets in the revolving fund account and next 
out of other funds made available for this purpose.]

SEC. 108. MICRO- AND SMALL ENTERPRISE DEVELOPMENT CREDITS.

  (a) Findings and Policy.--The Congress finds and declares 
that--
          (1) the development of micro- and small enterprise, 
        including cooperatives, is a vital factor in the stable 
        growth of developing countries and in the development 
        and stability of a free, open, and equitable 
        international economic system;
          (2) it is, therefore, in the best interests of the 
        United States to assist the development of the private 
        sector in developing countries and to engage the United 
        States private sector in that process;
          (3) the support of private enterprise can be served 
        by programs providing credit, training, and technical 
        assistance for the benefit of micro- and small 
        enterprises; and
          (4) programs that provide credit, training, and 
        technical assistance to private institutions can serve 
        as a valuable complement to grant assistance provided 
        for the purpose of benefiting micro- and small private 
        enterprise.
  (b) Program.--To carry out the policy set forth in subsection 
(a), the President is authorized to provide assistance to 
increase the availability of credit to micro- and small 
enterprises lacking full access to credit, including through--
          (1) loans and guarantees to credit institutions for 
        the purpose of expanding the availability of credit to 
        micro- and small enterprises;
          (2) training programs for lenders in order to enable 
        them to better meet the credit needs of micro- and 
        small entrepreneurs; and
          (3) training programs for micro- and small 
        entrepreneurs in order to enable them to make better 
        use of credit and to better manage their enterprises.
          * * * * * * *

SEC. 129. MICROENTERPRISE DEVELOPMENT GRANT ASSISTANCE.

  (a) Authorization.--(1) In carrying out this part, the 
Administrator of the United States Agency for International 
Development is authorized to provide grant assistance for 
programs of credit and other assistance for microenterprises in 
developing countries.
  (2) Assistance authorized under paragraph (1) shall be 
provided through organizations that have a capacity to develop 
and implement microenterprise programs, including 
particularly--
          (A) United States and indigenous private and 
        voluntary organizations;
          (B) United States and indigenous credit unions and 
        cooperative organizations; or
          (C) other indigenous governmental and nongovernmental 
        organizations.
  (3) Approximately one-half of the credit assistance 
authorized under paragraph (1) shall be used for poverty 
lending programs, including the poverty lending portion of 
mixed programs. Such programs--
          (A) shall meet the needs of the very poor members of 
        society, particularly poor women; and
          (B) should provide loans of $300 or less in 1995 
        United States dollars to such poor members of society.
  (4) The Administrator should continue support for mechanisms 
that--
          (A) provide technical support for field missions;
          (B) strengthen the institutional development of the 
        intermediary organizations described in paragraph (2); 
        and
          (C) share information relating to the provision of 
        assistance authorized under paragraph (1) between such 
        field missions and intermediary organizations.
  (b) Monitoring System.--In order to maximize the sustainable 
development impact of the assistance authorized under 
subsection (a)(1), the Administrator should establish a 
monitoring system that--
          (1) establishes performance goals for such assistance 
        and expresses such goals in an objective and 
        quantifiable form, to the extent feasible;
          (2) establishes performance indicators to be used in 
        measuring or assessing the achievement of the goals and 
        objectives of such assistance; and
          (3) provides a basis for recommendations for 
        adjustments to such assistance to enhance the 
        sustainable development impact of such assistance, 
        particularly the impact of such assistance on the very 
        poor, particularly poor women.
          * * * * * * *