MICROCAPITAL STORY: International Finance Corporation (IFC) and the Inter-American Investment Corporation (IIC) Invest $9.8m in Rio Bravo Group's Unik S.A. for $148m Microfinance Fund

Two multilateral financial institutions, the International Finance Corporation (IFC) and the Inter-American Investment Corporation (IIC), have recently invested in Unik, a Brazilian issuer of payroll cards and a financial intermediary between Brazil’s lower-income population and financial services. The IFC will obtain a 12 percent equity stake in Unik, while the IIC will gain 8 percent participation through ownership in Unik’s stock.

Though the total sum is undisclosed, the IFC and IIC project proposals of November 2007, express that the total equity and debt funding will sum the equivalent of USD 9.8 million. The proposal from the IFC, authorized by the World Bank in April 2008, indicates USD 1.8 million (BRL 3 million) directed as an equity investment, with an additional convertible loan of USD 3.1 million (BRL 5 million).

According to the IIC’s proposal, the IIC will invest USD 1.84 million (BRL 3 million) in equity and USD 1.23 million (BRL 2 million) in a convertible loan under the same terms as the one being given by the IFC. The proposal also indicates that Rio Bravo, Unik’s largest shareholder, will eventually invest 1.8 million (BRL 3 million) in cash. Currently, the deal only includes the IFC and IIC’s new 20 percent share.

The IFC and IIC targeted Unik in order to reach the lower income population as well as micro, small and medium-sized enterprises (MSMEs). The investment is aimed at helping Unik to recapitalize its liabilities. It will allow Unik to begin to obtain the equivalent of USD 147.3 million to create a credit investment fund. This will help Unik to develop and expand access to credit and financial services to its 750,000 lower-income clients as well as to its network of MSMEs that sell products to these lower-income clients.

Sao Paulo-based Unik was established in 1991 and is now owned by Brazil’s Rio Bravo, an independent investment firm. Unik provides payroll cards as well as increased access to financial services to lower-income workers. Unik has established a national network in Brazil that includes 16,000 commercial establishments and 3,000 companies. Employees are able to use their payroll cards to make purchases in the commercial establishments, which will be repaid via cash from the employer through Unik’s network. This network includes MSMEs as well as commercial banks, which allow credit to be extended to Unik payroll card holders. Brazilians without Unik cards can also use the Unik network to make cash payments at designated establishments. With a 40 percent increase in customers, Unik had total revenues of the equivalent of USD 118.6 million in 2007.

The World Bank’s International Finance Corporation (IFC), established in 1956, is a multilateral institution that makes private sector investment in developing countries. As calculated from its 2007 financial statements, the IFC’s return on assets was 6.46 percent, and its debt-equity ratio was 186.98 percent. It also reports the IFC’s total assets to be USD 40.6 billion as of June 2007 (p 136).

The Inter-American Investment Corporation (IIC), incepted in 1986 is part of the Inter-American Development Bank. The IIC invests in private enterprises in Latin America and the Caribbean through stock, collateral and consultancy. The IIC’s 2007 Annual Report states its total assets to be USD 1.2 billion as of December 31^st 2007 (p 4). Based on the IIC’s net income of USD 83.5 million, its return on assets was calculated as 0.07 percent (p 76).

By Sarah Knapp, Research Assistant

Additional Resources:

Inter-American Investment Corporation (IIC): 2007 Annual Report, Charter, Press Release, Unik Proposal

International Finance Corporation (IFC): 2007 financial statements, Press Release, Unik Proposal

Rio Bravo

Unik