MICROCAPITAL BRIEF: IDB Disburses $148m for Energy-efficiency Projects for Small, Medium-sized Enterprises (SMEs) in Argentina, El Salvador, Paraguay via UN’s Green Climate Fund

With funds drawn from the Green Climate Fund (GCF), a UN-managed investment vehicle for mitigating the effects of climate change, the Inter-American Development Bank (IDB), a member of the US-based IDB Group, recently made three loans totaling USD 140 million to finance energy-efficiency projects undertaken by small and medium-sized enterprises (SMEs) in Latin America. Each SME’s project must reduce its energy consumption or otherwise decrease its carbon emissions without reducing output or performance. The loans from IDB carry terms of 20 years and fixed annual interest rates of 0.75 percent with 5.5-year grace periods. Each loan is paired with grant funding for technical assistance with risk management and other aspects of disbursing energy-efficiency loans to SMEs.

In Argentina, IDB disbursed a loan of USD 100 million and a grant of USD 3.6 million to Banco de Inversion y Comercio Exterior (BICE), which is owned by the Argentine government. BICE has agreed to use the proceeds to on-lend to SMEs seeking to replace or upgrade their industrial and energy-producing machinery with a focus on systems that utilize biomass, organic matter that can be used as fuel, or biogas, which is produced from biomass.

Based in the city of Buenos Aires, BICE is a subsidiary of Banco de la Nacion Argentina, a state-owned bank. BICE provides lending services to SMEs and financial institutions in addition to funding private-sector infrastructure projects, leasing contracts and trade finance. As of March 2017, it reported total assets of ARS 14.5 billion (USD 941 million), outstanding loans of ARS 8.3 billion (USD 539 million) and deposits of ARS 6.4 billion (USD 417 million).

In El Salvador, IDB loaned USD 20 million and granted USD 1.7 million to Banco de Desarollo de El Salvador (BANDESAL), a government-backed development finance institution. BANDESAL plans to use the proceeds for on-lending to 494 Salvadoran SMEs for projects that reduce energy consumption or otherwise reduce carbon dioxide emissions.

BANDESAL, which is based in the city of San Salvador, seeks to stimulate economic development in El Salvador by supporting the country’s SMEs and its export industry, mainly by lending to SMEs directly or via other banks. BANDESAL’s operations include the management of two investment vehicles: (1) Fondo de Desarollo Economico, which lends directly to Salvadoran entrepreneurs engaged in “productive activities” and; (2) Fondo Salvadoreno de Garantias, which helps mitigate risk for other financial institutions that lend to SMEs. As of March 2018, BANDESAL reported total assets of USD 546 million and outstanding loans of USD 396 million.

In Paraguay, IDB loaned USD 20 million and granted USD 3 million to Agencia Financiera de Desarollo, a development bank backed by the Paraguayan government. The bank will use the proceeds to on-lend to Paraguayan SMEs looking to lower their energy consumption or adopt renewable power sources.

Established in 2005 and based in the city of Asuncion, Agencia Financiera de Desarollo lends to Paraguayan SMEs and homeowners as well as finances projects related to agriculture, education, infrastructure and reforestation. As of June 2018, the bank reported total assets of PYG 4.7 trillion (USD 824 million) and outstanding loans of PYG 3.9 trillion (USD 678 million).

Established in 2010, GCF is governed by 24 countries and places debt, equity and grant funding in projects in areas particularly vulnerable to the effects of climate change. Rather than administering the fund’s investments directly, the UN outsources that work to other organizations, such as multilateral financial institutions and domestic development banks. As of May 2018, GCF has raised USD 10.2 billion. As of July 2018, it holds a portfolio valued at USD 1.4 billion encompassing 76 projects in 69 countries.

Headquartered in the city of Washington, IDB Group serves Latin America and the Caribbean through four members: IDB, IDB Invest, the Inter-American Investment Corporation (IIC) and the Multilateral Investment Fund (MIF).

IDB is a development finance institution that was founded in 1959 and has 48 member countries, including 26 countries located in Latin America and the Caribbean. It works with governments, companies and NGOs to finance sectors such as financial services, health, education, renewable energy, transportation and telecommunications for the promotion of “social inclusion and inequality, productivity and innovation, and economic integration.” It also provides technical assistance and research in these areas. During 2017, IDB disbursed loans totaling USD 10 billion and had USD 89 billion in loans outstanding.

IDB Invest, which provides consulting, guarantees, debt and equity financing to SMEs in addition to other private-sector projects, executed 234 contracts valued at a total of USD 3.2 billion during 2017. As of 2018, IDB Invest’s portfolio is valued at USD 11.2 billion.

IIC provides financial and advisory services to SMEs, financial service providers, corporations and government-backed enterprises. As of March 2018, IIC reported quarterly loan disbursements of USD 101 million and outstanding loans of USD 1 billion.

MIF invests in microfinance funds, venture capital funds and projects that support SMEs. During 2017, MIF launched 36 projects costing a total of USD 24 million.

By Nicholas Galimberti, Research Associate

Sources and Additional Resources

IDB Group press release, BICE
https://www.iadb.org/en/news/argentina-invest-sustainable-energy-idb-support

IDB Group press release, BANDESAL
https://www.iadb.org/en/news/el-salvador-offer-greater-investment-energy-efficiency-idb-support

IDB Group press release, ADF
https://www.iadb.org/en/news/paraguay-promote-private-sector-investments-energy-efficiency-idb-support

IDB financials
https://publications.iadb.org/bitstream/handle/11319/8825/Inter-American-Development-Bank-Annual-Report-2017-Financial-Statements.pdf?sequence=1&isAllowed=y

IDB 2018 approved budget
http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1748706463-39

BICE background
https://www.bice.com.ar/en/mision/

BICE financials
https://www.bice.com.ar/wp-content/uploads/2017/06/Balancetrimestral0317.pdf

BANDESAL background
http://www.bandesal.gob.sv/institucion/quienes-somos/

BANDESAL financials
http://www.bandesal.gob.sv/wp-content/uploads/2018/06/Bandesal_Marzo-2018.pdf

Agencia Financiera de Desarollo background
https://www.afd.gov.py/mision-vision-y-valores-i12