At a glance
If finance is the oxygen of business, as it is sometimes said, many companies in Latin America and the Caribbean are gasping for air.
Getting a business loan from a bank is often an uphill struggle, and the climb is especially steep for small-scale or female entrepreneurs, or businesses in underserved areas or new industries.
But even for larger, well-established companies, financing options can be limited and costly, a reflection of persisting gaps in the region’s financial systems.Read more
At IDB Invest, our goal is to expand access to finance in ways that will ultimately make a meaningful impact on development.
We do this by partnering with a range of financial intermediaries, from local banks and microfinance institutions to investment funds and other non-bank players such as leasing and factoring companies. We help them identify some of the obstacles hindering their growth and gaps in the services they provide, then develop and implement targeted, effective solutions. One priority is to ensure that our partners have the digital technology they need to operate efficiently and contribute effectively to the region’s development. To fast-track this effort, we finance capital expenditures for investments in digital transformation.Read more
We work with banks that share our goal of making an impact on development. In some cases, we may seek out a partner that is willing to explore new ways to increase financing to a target sector. Or maybe the bank is already an important player in that sector, and we can provide support to scale up those efforts.
In other cases, we may see an opportunity to build a knowledge partnership in which we can learn from a bank’s expertise in a sector or a country and in turn assist the bank in expanding its business and developing connections with other financial institutions in the region and beyond. We also work with banks to mobilize additional capital for critical projects.
We offer banks a range of financial products, including medium- and long-term funding to help them mitigate mismatches between assets and liabilities and expand lending to underserved populations. In some cases, we may make an equity investment to help a bank meet the more stringent capital requirements in place since the global financial crisis. Local currency instruments are also available to banks to reduce foreign exchange risks. Finally, we offer financing for digital technology projects, both for on-lending and for banks’ own capital expenditures in this area.
IDB Invest also provides advisory services that help banks strengthen their corporate governance; establish adequate controls to prevent money laundering and financing of terrorism; and create products to mitigate the effects of climate change, promote gender equality and meet other development goals.
With internet connections and cell phone networks improving throughout the region, microfinance institutions are increasingly able to use technology to make financial services available in remote areas. Since many potential customers do not have a bank account or traditional credit history, these institutions are also using alternative scoring methodologies to assess credit risk.
We support these types of innovation with loans and technical assistance, as ways to expand access to credit. We also offer local currency financing to improve the resilience of microfinance institutions and reduce their exposure to foreign exchange fluctuations.
The number of nontraditional microfinance providers is on the rise in the region, with retail chains, digital lending platforms and banks themselves targeting this niche. At IDB Invest, we want to encourage continued growth in this digital-intensive area by financing capital investments in new technologies.
Factoring and Leasing Companies
Non-bank financial institutions can be a key source of funding for businesses. A factoring company, for example, typically advances funds to a client based on the value of its accounts receivables (less commission and fees), after which it handles collection of the outstanding invoices. The client gets access to working capital and can focus on business growth rather than debt collection. A leasing company, for its part, will purchase an asset for a client, such as a piece of equipment or a vehicle, and lease it back to the client over time, with interest.
IDB Invest provides advisory and financial support to increase the use of digital technology in this field—such as by automating the approval, pricing and administration process—to lower costs and spur competition. We are also looking at equity investments in such companies to provide additional capital needed to promote growth.
Private equity and private credit funds provide a potentially important source of long-term capital, but they still tend to be underused in Latin America and the Caribbean. These funds pool investments that typically focus on a range of sectors and either have a country or a regional focus. They are administered by professional fund managers, primarily with money from institutional investors such as pension funds or insurance companies, which may be local or international.
We invest capital in selected investment funds whose objectives dovetail with our development mission and strategic priorities, to support the expansion and modernization of mid-size and high-growth companies in the region. We also provide structured loans for selected investment funds.
The participation of an institution like IDB Invest in a private investment fund often attracts additional investments, another step toward filling the gap in long-term financing.