Beyond Financing: The Inter-American Investment Corporation’S Unique Challenge

03/29/2009

The IIC continues to position itself as a reliable source of funding for small and medium-size enterprises and consolidates its competitive edge over commercial banks in a restricted financial and credit environment

Medellín, Colombia - On March 30, 2009, the Inter-American Investment Corporation (IIC), the premier multilateral financial institution focused on providing direct and indirect financing for small and medium-size enterprises (SMEs) in Latin America and the Caribbean, presented its financial results during the twenty-fourth annual meeting of its Board of Governors. The report was ratified by the Governors of the IIC’s member countries.

According to its annual report, the IIC’s net assets grew steadily during the year, from US$1.2 billion in 2007 to US$1.5 billion in 2008. Asset quality continued to be satisfactory during the period. The past-due portfolio went from 0 percent in 2007 to 0.56 percent in 2008. As of year-end 2008 the ratio of loan loss provisions to past-due loans was healthy, at 11 times.

Net profit in 2008 was US$13.9 million, compared with US$83.5 million in 2007. In 2007 this figure included a US$56 million gain on the sale of equity investments. Results for 2008 were impacted by a US$16 million increase in the allowance for loan losses, which went from US$39 million in 2007 to US$55 million in 2008.

In 2008, the IIC approved operations totaling US$300.5 million for sixty-four projects. Approvals channeled through financial intermediaries totaled US$172.8 million, for twenty-six projects. The thirty-eight direct corporate approvals totaled US$127.7 million. The IIC also mobilized US$300.6 million via cofinancing operations. Development-related assets account for 62.6% of the IIC’s total assets. In 2008, the IIC stepped up its commitment to increase its direct financing to private enterprises in the smaller economies in the region. It expanded its presence in these markets to include Guatemala and El Salvador, bringing to eleven the number of countries where it now has a local presence.

According to the IIC’s General Manager, Jacques Rogozinski, "Today we face another economic crisis, but the Corporation’s work over the past six years has put it in a better position than at the beginning of the last economic downturn. The IIC has matured, evolved, and learned important lessons that will enable it to build on its experience in providing funding to SMEs in the region."

In keeping with the strategy for segmenting the financial institution market among the IDB Group private sector windows, in 2008 the IIC began to focus primarily on providing financing for financial intermediaries with US$500 million or less in assets. The IIC shall thus play a catalytic role in the development of financial institutions that serve SMEs in the region. In 2008, the IIC financed nineteen operations with such banks, i.e., those with less than US$500 million in assets.

For the fourth consecutive year, the IIC continued to offer its Small Business Revolving Line, designed to provide small loans to eligible SMEs under standardized eligibility requirements. It is now available in seventeen countries in Latin America and the Caribbean. In 2008, twelve operations were approved under the SBRL for an aggregate US$4.3 million and an average loan amount of US$358,000.

In order to enhance its ability to comply with its mandate to promote the economic development of its regional developing member countries, in 2008 the IIC implemented the Development Impact and Additionality Scoring System (DIAS). The DIAS methodology provides a systematic approach for ex-ante assessment of the expected developmental impact of each project as well as for ex-post tracking and evaluation. In addition to measuring the expected financial contribution of each project, this tool is in line with the IIC’s new strategic approach that seeks to maximize the IIC’s developmental impact while ensuring financial sustainability over the medium and long term.

In 2008 the IIC also created the Technical Assistance and Strategic Partnerships Division (TAS) to expand its capacity to provide value-added nonfinancial services to SMEs. The TAS Division’s mission is to help the IIC’s business development units deliver technical assistance to SMEs in order to help SMEs become more competitive and improve their access to financing from the IIC and commercial sources. TAS will also make technical assistance resources available to existing clients to help them face the challenges of the global economy and adopt best corporate management practices, especially in the areas of environmental protection and family-owned business governance. TAS will initially focus on four strategic, complementary programs: FINPYME®; renewable energy and energy efficiency; promotion of good and sound practices for governance of family-owned SMEs; and general consulting services. As of today, 146 companies in Central America, Panama and the Dominican Republic have completed the FINPYME process and undergone a complete diagnostic review of their operations. In the Caribbean, FINPYME was launched in five English-speaking countries: The Bahamas, Barbados, Belize, Jamaica, and Trinidad and Tobago. The FINPYME program will be launched in Colombia in June 2009. TAS activities are supported by technical assistance funds established with the IIC by the governments of Austria, Denmark, Italy, and Korea, as well as funds established with the Inter-American Development Bank by France, Japan, Spain, and Switzerland.

The creation of DIAS and TAS attests to the IIC’s ability to devise innovative solutions and adapt to changing market conditions, as well as to its efforts to achieve increasing relevance in the region.

On January 12, 2009, the People’s Republic of China officially became a member of the institutions that are part of the Inter-American Development Bank Group. The People’s Republic of China became the forty-fourth member of the IIC and subscribed 110 of the IIC’s shares, which represent 0.16% of the IIC’s capital. In addition, the People’s Republic of China contributed US$75 million to establish the China-IIC SME Equity Investment Fund, which will be administered by the IIC, to invest in equity, quasi-equity, and hybrid instruments issued by SMEs in the IIC’s twenty-six regional member countries.

The Inter-American Investment Corporation, a multilateral financial institution that is a member of the Inter-American Development Bank (IDB) Group, provides financing (in the form of equity investments, loans, guarantees, and other instruments) and advisory services to private enterprises in Latin America and the Caribbean. The IIC’s mission is to promote the economic development of its regional member countries by encouraging the establishment, expansion, and modernization of private enterprises, particularly those that are small and medium in size. The IIC has approved some US$3.4 billion in funding since it began operations. For more information on the IIC’s activities, please visit www.iic.int.





For more information on technical assistance provided by the IIC, please contact Jorge Roldán at + (1-202) 746-0608. For more information on IIC financing, send an e-mail to iicmail@iadb.org.

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