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The Millennium Challenge Corporation (MCC), an independent US foreign assistance agency, was established with broad bipartisan support in January 2004. The
agency was designed to deliver aid differently, with a mission and model reflecting key principles of aid effectiveness.
MCC has a single objective—reducing poverty through economic growth—which allows it to pursue development objectives in a targeted way. There are
three key pillars that underpin MCC’s model:
MCC partners only with countries that demonstrate commitment to good governance on the premise that aid should build on those practices and reward
countries already pursuing policies conducive to private investment and poverty-reducing growth.
MCC seeks to increase the effectiveness of its programs by identifying cost-effective projects and investing only in those that promise to deliver positive
development returns. MCC tracks the progress of its investments and has committed to measuring project impact through rigorous evaluations.
Country ownership matters:
MCC works in partnership with eligible countries to develop and implement an aid program on the premise that investments are more likely to be effective
and sustained if they reflect the country’s own priorities and strengthen the partner government’s accountability to its citizens.
MCC in Perspective
Annual Appropriations ($millions)
Though MCC is an important tool in the US government’s foreign aid toolbox and the only one designed to focus exclusively on development assistance, it is a relatively small agency.
Other includes Department of Health and Human Services (2%), Department of Energy (2%), Department of Defense (2%), Peace Corps (1%), and Department
of the Interior (1%).
Picking MCC’s Partners
MCC partners only with low- and lower-middle-income countries that demonstrate commitment to good governance.  MCC determines
country eligibility through a series of quantitative, third-party indicators that assess policy performance. These indicators fall into the three broad
areas: ruling justly, investing in people, and economic freedom. MCC compiles these indicators into country “scorecards,” that
the agency’s board of directors uses to inform its annual eligibility decisions.  In particular,
the board considers countries that score better than half of their income-based peer group on the majority of the indicators. Most of MCC’s money goes to
low-income countries (LICs), but MCC is allowed to dedicate up to 25 percent of its funds for lower-middle-income countries (LMICs) (see table 1).
The scorecards are the transparent, public face of the selection process, and MCC and its board weigh these quantitative assessments heavily. However, the
indicators are incomplete and imperfect proxies for actual policy performance, so the board relies also on supplemental information to get a more complete
understanding of candidate countries’ actual policy performance.
Table 1. MCC compacts (both number of programs and funds allocated) correspond roughly with the distribution of world’s low- and lower-middle-income
countries, with the exception of South and Central Asia.
Share of Current LIC/LMIC Countries
Share of LIC/LMIC Population
Share of LIC/LMIC Poor (<$2 a Day)
Share of MCC Programs (# of compacts)
Share of MCC Program Funds
Asia / Pacific
Europe / Eurasia
Latin America / Caribbean
Middle East / North Africa
South / Central Asia
Note: Data in this table refer to those countries that have signed a compact with MCC. The list of low- and lower-middle-income countries changes
somewhat each year as countries’ incomes change. This table reflects the list as of FY2015, according to 2013 data on gross national income per capita,
Atlas method (Source: World Bank). Twenty-three of the 83 candidate countries do not have recent poverty estimates (2005 or later). Of these, two-thirds
are low-income countries (Burma, North Korea, and Solomon Islands in Asia/Pacific; Haiti in Latin America/Caribbean; Afghanistan and Uzbekistan in
South/Central Asia; Comoros, Djibouti, Eritrea, the Gambia, Guinea-Bissau, Somalia, South Sudan, and Zimbabwe in sub-Saharan Africa) and one-third are
lower-middle-income countries (Kiribati, Micronesia, Mongolia, Papua New Guinea, Samoa, and Vanuatu in Asia/Pacific; Kosovo in Europe/Eurasia; Guyana in
Latin America / Caribbean; Syria in Middle East / North Africa). These countries were excluded from the “percent of LIC/LMIC poor” calculation, so these
figures should be considered imprecise estimates. The high percentage of population and poverty rates in South/Central Asia is driven largely by India.
MCC’s flagship program is the country compact. A compact is an agreement with a partner country in which MCC provides large-scale
grant financing (around $350 million, on average) over five years for projects targeted at reducing poverty through economic growth (see table 2).
Table 2. MCC has signed 29 compacts with 25 countries.
Year of Signing
Cape Verde II
El Salvador II
Note: Current as of December 2014.
* Italicized completion dates indicate a compact that was terminated before its scheduled closure due to a military coup in the country.
Figure 1. MCC compacts invest in a broad range of sectors, though countries often prioritize transportation infrastructure and agricultural
Source: MCC’s 2013 Annual Report, with FY2013 figures adjusted to include the Ghana II compact signed in August 2014 ($260 million added to Energy,
$48 million added to Administration and M&E).
MCC also has a threshold program that supports targeted policy reform activities to help a country achieve compact eligibility.
The threshold program is much smaller, accounting for only five percent of MCC’s total program spending since 2004. Countries typically complete threshold
programs in two to three years. The average cost of a program is around $20 million. Approximately three-quarters of threshold programs have supported
anticorruption policy reforms. Threshold program funds have also funded activities in other policy areas, including primary education, public health
(immunization), business regulatory policy, and fiscal policy.
Table 3. MCC has signed 24 threshold programs with 22 countries.
Year of Signing
São Tomé and Príncipe
Note: Current as of December 2014
MCC’s Model Incorporates Key Principles of Aid Effectiveness
When the MCC was created the international community was coming to consensus on principles that would make foreign aid more effective. A number of these
principles are included in MCC’s model:
Reward good governance.
MCC selectively partners with countries based on their policy performance. MCC provides grants only to relatively well-governed countries that meet
specific, transparent policy performance criteria. Moreover, it suspends or terminates funds if the quality of governance substantially deteriorates.
Have a clear, single objective.
MCC has one, defined goal: achieving poverty reduction through economic growth. With this focus, the MCC pursues growth outcomes in a more targeted and
more effective way than when development goals are blended with other objectives such as promoting stability, security, or nation-building. These are all
important and reasonable objectives of US foreign assistance, but the multiplicity of goals can create ambiguity and undermine the effectiveness of
Use rigorous economic analysis to choose projects.
MCC commits to investing in growth-focused programs that will yield benefits—in the form of increased
local incomes—that exceed the cost of program implementation. MCC’s partner countries use growth diagnostics to identify their binding constraints to
growth, and MCC uses cost benefit analysis to screen for projects that will address those constraints in a cost-effective way. While almost all aid
projects yield some benefit to someone, MCC’s processes seek to ensure that its investments generate sufficient benefits to justify the project’s
costs. MCC is not the only donor to use these tools, but it is the only one to apply them systematically.
Predict, track, and measure results.
MCC focuses on results from the outset. It is the only donor to link ex ante cost-benefit analysis of projects to performance targets. It
has also set new standards for comprehensiveness, rigor, and transparency around evaluation and learning. Nearly 85 percent of the value of MCC’s portfolio
is subject to independent evaluation; nearly half of these will use rigorous impact evaluation methods to identify attributable results (i.e., did MCC’s
project actually increase household incomes in a cost-effective way?).
Emphasize country ownership.
Partner countries develop proposals for how they will use MCC funding and take the lead role in project implementation. MCC’s flexibility to respond to
country-led priorities is due largely to its predictable, multiyear funding for country programs and its freedom from Congressional earmarks. Because of
these dynamics, MCC investments align far better than those of other US government agencies with what ordinary citizens in partner countries identify as
their top priorities. 
Have time-limited partnerships.
Compared to historically open-ended relationships that characterize traditional US foreign assistance, MCC compacts have a fixed five-year timeline. This
limit provides incentive for timely implementation by the partner country, creates a clear exit from each compact investment, and forces reassessment of
whether or not to continue engagement with a country.
Commit to transparency.
MCC consistently publishes the tools it uses to inform investment decisions, quarterly updates of how compacts are progressing toward their targets, and
the results of evaluations that show the extent to which MCC funds achieved their objective. 
Ten years after its creation, MCC remains a compelling example of how foreign assistance can be structured to enhance aid effectiveness. Not surprisingly,
the institution’s practices have not always been entirely consistent with its model. The agency has evolved over the past 10 years as rhetoric and best
intentions encountered operational realities and political challenges. Consequently, there are a number of ways MCC could strengthen the implementation of
certain aspects of its model, as outlined in CGD’s MCC at 10 series. But with 10 years of experience and a track record of more than $10 billion
in programs, MCC’s application of aid effectiveness principles clearly and impressively distinguishes the agency from many other donors and provides a
sound foundation for continued support of MCC’s operations.
In the MCC at 10 series, Sarah Rose and Franck Wiebe take an in-depth look at three main pillars of MCC’s model: the agency’s focus on policy
performance, results, and country ownership. To what extent has MCC’s model governed its operations in practice? How should MCC strengthen and expand its
model and operations during the next 10 years? How is MCC different than other modes of US foreign assistance? Find the papers and more briefs like this
one at CGDev.org/page/mcc-ten.
MCC candidate countries are those that have per capita incomes (Atlas method) less than or equal to $4125 (for FY2015) and are not statutorily
restricted from receiving US foreign assistance.
MCC’s board is made up of five government representatives—the Secretary of State, the USAID Administrator, the Secretary of the Treasury, the US
Trade Representative, and MCC’s CEO—as well as four private representatives suggested by Congress (one each from the majority and minority of both
the House of Representatives and the Senate) who serve in their individual capacities.
Benjamin Leo. 2013. “Is Anyone Listening? Does US Foreign Assistances Target People’s Top Priorities?.” CGD Working Paper 348. Washington, DC:
Center for Global Development.