MICROCAPITAL STORY: International Finance Corporation (IFC) To Lend USD 450 Million and Increase Its Support of Microfinance Institutions (MFIs) in Colombia, Peru, Ecuador

The International Finance Corporation (IFC), a member of the World Bank Group, plans to lend USD 450 million to Peru, Colombia, and Ecuador over a 12-month period through to June 2009; however, in light of the global financial crisis that that amount may increase. The IFC is also increasing its support of microfinance institutions (MFIs) because they have been deemed an efficient way to lift people from poverty.

Created in 1956, the IFC aims to foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. According to the organization’s 2008 Annual Report, IFC made investments of USD 16.2 billion in the 2008 fiscal year.

Although Roberto Albisetti, the IFC’s chief for the three countries, declined to give an estimate of how much more the IFC would increase its disbursements to the three countries, he did state that the IFC is “readying additional funds during this crisis to respond to an unmet demand by the international financial market.”

The IFC along with governments and other multilateral lenders have raised funds for the purpose of helping developing countries around the world weather the economic crisis for the next three years. Currently, the fund stands at a total of USD 31 billion. The IFC plans to draw from this fund to finance the increase in the loan to Peru, Colombia, and Ecuador.

The USD 31 billion fund includes a USD 3 billion program to support global trade finance. Part of the program is to guarantee the payment in trade transactions with local banks. As part of this program, the IFC will lend approximately USD 25 million to Ecuadorian banks Grupo Financiero de la Produccion, Banco de Guayaquil, and Grupo Financiero Banco International. In all, Ecuador will receive a total of $55 million from the IFC in the fiscal year ending June 2009, an increase from the USD 30 million they received in 2008.

Colombia is by far the IFC’s largest recipient of the three countries; it will receive around $320 million from the IFC in 2009, an increase from the USD 270 million Colombia received in 2008. One of the IFC’s key loans in Columbia is the USD 50 million loan to Columbia’s largest airline Avianca SA for the purchase of jet spare parts. The IFC will also disburse during its last fiscal quarter a USD 45 million loan to the city of Bogota to finance part of the city’s USD 500 million infrastructure program. To read more on the IFC’s past investment in Colombian bank, Corporacion Mundial de la Mujer de Medellin, please read this MicroCapital article.

In Peru, however, the IFC will invest USD 100 million in the 2009 fiscal year, which is a decrease from the USD 360 million Peru received in 2008. The IFC has stated that the decline stems from a change in investment strategy. It will no longer invest in big projects as it recently did; instead, the IFC plans to disburse funds to more companies that generate jobs and reach the poorest sectors of the economy. This includes increasing its support of MFIs because microfinance has been deemed an efficient way to lift people from poverty. To read more on the IFC’s past investments in Peru, read this MicroCapital article on the IFC’s acquisition of Peruvian microInsurance company Protecta‘s stock.

Additionally, due to changes in the market, the IFC has also put its plan to sell COP 1 trillion (USD 425 million) worth of bonds on hold because it is now cheaper to raise funds in the U.S. and convert them into local currencies than in previous times, but the IFC has stated it plans to move forward with its investment in the Peruvian branch of Titularizadora, a Colombian mortgage securitization company, in exchange for a stake in the firm.

ADDITIONAL RESOURCES

Wall Street Journal, March 26, 2009: “IFC To Lend Colombia, Peru, Ecuador $450M Through Jun ’09”

MicroCapital Story, March 18, 2009: “International Finance Corporation (IFC) Provides Loan worth EUR 7 million to Microcredit Foundation EKI (MCF EKI) to Expand Financial Services in Bosnia and Herzegovina“