IIC Program To Fund Specialized Financial Institutions In Mexico Will Promote And Expand Access To Credit For Sole Proprietorships And Family Businesses In Mexico
The US$30 million program will enable specialized financial institutions in Mexico to offer more flexible financial products, increase their volume of operations, and improve access to and terms of financing for small enterprises
Washington, D.C.- On July 31, 2007, the Inter-American Investment Corporation (IIC) approved its first program for funding specialized financial institutions in Mexico (IFEMs, the acronym in Spanish). The funding will help participating institutions grow their loan portfolios, principally to small and medium-size enterprises (SMEs). Loans and equity investments will be made under the program, initially funded with up to US$30 million.
The program encompasses niche lenders called Sociedades Financieras de Objeto Limitado (Sofoles) and Sociedades Financieras de Objeto Múltiple (Sofomes), as well as credit unions, financial leasing companies, and factoring companies—mainly small ones. Generally speaking, the program will include all institutions that provide financing but are not banks.
Between fifteen and twenty IFEMs are expected to be funded through this program, at amounts ranging from US$1.5 million to US$2.0 million per operation. The funding from the IIC will be channeled to a total of approximately 1,000 SMEs. Individual operations will range from a minimum of US$500,000 to a maximum of US$3 million.
According to Carlos Roa, IIC Financial Institutions and Structured Finance Coordinator, "This initiative is expected to have a significant developmental impact because of its expected impact on the operations of participating financial institutions. The program seeks to encourage IFEMs to follow good lending practices by providing them with support in the form of technical assistance resources for improving management, strengthening information systems and technologies, and adopting good corporate governance practices. Most of the technical assistance resources will come from the Inter-American Development (IDB) Group's Multilateral Investment Fund (MIF) under an IIC/MIF financing facility for small and medium-size enterprises."
The loans and equity investments will enable IFEMs specializing in sectors such as SMEs, agribusiness, microlending, mortgages, and fixed-asset financing to offer their clients medium-term financing solutions that are, thanks to the program terms, very flexible. Because of the wide variety of eligible IFEMs, the funds are expected to reach a broad range of end beneficiaries—chiefly sole proprietorships and small family businesses that have no access to financing because they do not operate in the formal sector and cannot provide security.
To be eligible under the program, IFEMs must meet the following criteria: (i) total assets between US$5 million and US$150 million; (ii) net worth between US$1 million and US$15 million; (iii) at least one complete fiscal period of operating history; (iv) financial statements audited by a recognized accounting firm in Mexico; (v) satisfactory business plan and growth potential in one or more sectors; (vi) senior management and managers with experience in the Mexican financial sector; (vii) compliance with domestic accounting, tax, and labor regulations and willingness to improve environmental practices; and (viii) good corporate governance practices already established or being implemented.
The IIC is providing funding for such IFEMs because commercial bank funding is not widely available to them.
As Rodrigo Navas, IIC Investment Officer and head of the project team, pointed out, "Because the shortage of medium- and long-term sources of funding affects many small specialized financial institutions in Mexico, this will be the first time that many of those participating in the program receive funding from a multilateral institution. This operation seeks to encourage other Mexican and foreign institutions to provide funding for selected IFEMs. Among these institutions is the Secretaría de Economía, with which the IIC is coordinating measures that will complement the program with guarantees that will make more resources available to SMEs."
The Inter-American Investment Corporation is a multilateral financial institution that is a member of the (IDB) Group. It 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. For more information on the IIC's activities, please visit www.iic.int.
Contact: Carlos Roa/Rodrigo Navas (in Washington D.C.)
Telephone: (202) 623-3955