The Inter-American Development Bank’s (IDB’s) Board of Executive Directors approved a loan and guarantees singular facility of USD 150 million to strengthen financial institutions in Latin America and the Caribbean to boost long-term financing to small business projects deemed to have a high social impact.
The assistance under the Latin America and Caribbean Subordinated Debt Facility, a financial intermediary of IDB, will also mobilize additional resources from commercial banks and other institutions in order to increase funding to small and medium-sized enterprises (SMEs), microfinance and housing finance.
A press release from IDB claims that liquidity constraints and worsening portfolio performance due to the financial crisis in 2008 have forced Latin American private financial institutions to reduce lending levels, particularly to SMEs.
IDB states that the Latin America and Caribbean Subordinated Debt Facility will utilize subordinated debt instruments that may consist of subordinated loans, guarantees to regional banks and other investors willing to fund such loans, or partial credit guarantees to support the issuance of subordinated bonds. The subordinated debt instruments will be financed chiefly by the IDB, whereas capital instruments that may be required by these institutions will be financed mostly by the International Finance Corporation (IFC), the private-sector arm of the World Bank.
About Inter-American Development Bank (IDB):
Established in 1959, the Inter-American Development Bank (IDB) provides multilateral financing in Latin America and the Caribbean. The bank works with governments, companies and non-governmental organizations (NGOs) to provide both loans and grants to support small and medium-sized enterprises (SMEs), health and education, among other sectors. It also provides technical assistance and research in these areas. Its Board of Executives are elected by 48 member countries, 26 of which are from Latin America and the Caribbean.
About International Finance Corporation (IFC):
A member of the World Bank Group, the International Finance Corporation (IFC) uses loan and debt securities, equity investments and guarantees with the intent of alleviating poverty. It invests in financial institutions and other companies in emerging markets as well as providing technical assistance. The IFC has 182 member countries that collectively determine its policies, and approve investments. In fiscal year 2009, its new investments totaled USD 14.5 billion.
By Matthew Fox, Research Assistant
Sources and Additional Resources
Inter-American Development Bank (IDB): Press Release, 6 August 2010: http://www.iadb.org/news-releases/2010-08/english/idb-to-help-financial-institutions-boost-lending-to-small-projects-with-high-soc-7607.html
MicroCapital Universe: Inter-American Development Bank (IDB): https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Inter-American+Development+Bank+(IDB)
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