U.S. Department of the Treasury

(Archived Content)

HP-909

 

In June of 2007 the Treasury Department launched an initiative to expand and improve access for small businesses in Latin America to commercial financing ( http://www.treas.gov/press/releases/hp452.htm). The three-part initiative is jointly supported by the U.S. Treasury Department, the Inter-American Development Bank (IDB), and the Overseas Private Investment Corporation (OPIC) as follows:

1. Through its Multilateral Investment Fund (MIF) and its Inter-American Investment Corporation (IIC), the IDB provides technical cooperation grants and loans to local banks to strengthen their capacity in lending to the small business sector;
2. OPIC offers guarantees and loans to banks that commit to initiating or expanding their small business lending; and
3. The Treasury Department's Office of Technical Assistance assists targeted Latin American countries in the design and implementation of regulations and oversight of credit providers to small businesses.

Progress to Date – Since its launch, the initiative has been very active in advancing the three goals originally established by Secretary Paulson:

Since its launch, the initiative has been very active in advancing the three goals originally established by Secretary Paulson:

(1) Introduce new lending models that fit the unique characteristics of smaller firms.

In September 2007, the MIF committed $10 million to the Initiative and has since been actively promoting the Initiative among financial institutions in Latin America and the Caribbean.

In November 2007, the MIF signed the first Technical Cooperation agreement with BanCentro in Nicaragua, approving a $500,000 grant for a $1 million capacity building project to develop new financial products for small businesses, expand its small business loan portfolio, strengthen capacity of its human resources in the analysis and management of risks specific to the small business sector and adopt international best practices in implementing and expanding its small business program.

In the first quarter of 2008, the MIF started to receive applications from financial institutions throughout the region, and is currently analyzing requests from banks in Mexico, Central America and the Caribbean.

(2) Assume a portion of the risk associated with small business lending.

In September 2007, OPIC committed $150 million to the Initiative to provide financing and guarantees for small business loans in Latin America and the Caribbean.

Already, OPIC has approved over $52 million in loans to banks in Honduras, Costa Rica, Ecuador, Paraguay, and Peru to expand their operations in the small business sector.

Typically, OPIC assumes between 50-80% of the commercial risk attached to each loan and in some cases provides additional inconvertibility of currency coverage as well.

(3) Ensure that small business lending is not unnecessarily constrained by burdensome regulations or bureaucracy.

In Peru, OPIC and Treasury department officials have discussed ways to reduce the regulatory burden on banks operating in the small and medium-sized business sectors.

Treasury's Office of Technical Assistance (OTA) met with Salvadoran officials in February 2008 to discuss technical assistance in designing and implementing regulations, and oversight of credit providers to small business borrowers.

MIF met with Latin American bank regulators in early 2008 to identify the critical challenges that they confront in setting up prudential frameworks for an evolving financing landscape. Specific areas of collaboration were identified, with proposals for follow-up action forthcoming.

 

Plans for 2008 - Over the coming months, follow-on activities will include:

- Over the coming months, follow-on activities will include:

• Pending approval, four to six new technical assistance projects could begin operations in mid-late 2008. MIF grants will be used to help banks strengthen their capacity to lend to the small business sector.
• It is estimated that about $3 million in MIF grants will be approved in 2008, with matching funds from the recipient banks.
• OTA plans to visit El Salvador, Guatemala, and Honduras in the coming months to further discussions on legal and regulatory roadblocks to small business lending and on implementing appropriate regulations and oversight of credit providers to deepen credit access to small businesses.
• OTA also plans to reach out to countries that have banks with MIF technical cooperation programs under the Initiative.
• OPIC has $165 million in loans in the pipeline to banks in Paraguay, Peru and Central America. A portion, to be determined, of each loan will be dedicated to small business lending.

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