The Inter-American Development Bank’s (IADB) Multilateral Investment Fund (MIF) has approved a US$7.5mn in renewable credit lines and US$700,000 in technical cooperation resources to help four microfinance institutions in Bolivia, Ecuador, El Salvador and Nicaragua expand financing for small businesses and offer less expensive remittances services.
Subject to approval by its own administrative authorities in coming weeks, the IADB’s Inter-American Investment Corporation (IIC) expects to provide US$7.5mn more in lines of credit to the four participating institutions, Caja Los Andes of Bolivia, Sociedad Financiera Ecuatorial of Ecuador, Banco ProCredit of El Salvador and Financiera ProCredit of Nicaragua.
These microfinance institutions share a principal shareholder, the Frankfurt-based Internationale Micro Investitionen (IMI), a development-oriented private investment company. IMI holds stakes in 18 microfinance institutions in Latin America, Eastern Europe, Asia and Africa.
This first co-financing effort undertaken by the MIF and the IIC is expected to benefit some 7,700 microenterprises and small businesses in the four countries by providing them loans to finance working capital and other financial products and services.
The MIF technical cooperation resources will help the microfinance institutions improve their remittance distribution mechanisms, expand these services in rural areas, test new financial products tailored to the needs of remittance senders and recipients and develop an Internet platform to facilitate money transfers.
As part of the project the institutions will install automatic teller machines (ATMs) in towns and villages they do not serve, issue debit cards to some 14,000 client who receive remittances, acquire licenses to issue credit cards and establish a computer-based system that will allow migrants to transfer funds using credit cards or bank accounts.
Under the project, Caja Los Andes of Bolivia will receive a US$2mn line of credit and US$166,000 in technical cooperation from the MIF and will provide US$252,000 in counterpart funds. Sociedad Financiera Ecuatorial of Ecuador will receive a US$2.25mn line of credit and US$202,000 in technical cooperation from the MIF, and it will provide US$216,000 in counterpart funds.
Banco ProCredit of El Salvador will receive a US$2mn line of credit and US$166,000 in technical cooperation from the MIF, and will provide US$252,000 in counterpart funds. Financiera ProCredit of Nicaragua will receive a US$1.25mn line of credit and US$166,000 in technical cooperation from the MIF and will provide US$252,000 in counterpart funds.
The IIC credit lines will match those of the MIF for each microfinance institution. These two-year lines may be renewed twice, subject to meeting financial and social development impact targets. Interest rates will be based on six-month Libor plus a spread for each institution to reflect perceived risks.
The MIF, an autonomous fund administered by the IADB, supports the development of the private sector and more efficient markets in Latin America and the Caribbean. Among other activities, it has supported the expansion of microcredit in the region as well as fostered competition among providers of remittances services to reduce the cost of money transfers made by Latin American migrants to their home countries.
The IIC promotes the establishment, expansion and modernisation of small and medium-size enterprises in Latin America and the Caribbean using loans, guarantees, equity investments and other instruments to provide financial resources for private sector projects in the region.