Local Currency Loans: The New Frontier
Though most of its loan portfolio is U.S. dollar-denominated, the IIC is also able to provide financing in local currency. To date, it has financed operations in Mexican pesos, Brazilian reais, Peruvian soles, Colombian pesos, and Argentine pesos.
The IIC is planning to expand its local-currency lending activities over the next few years to better fulfill its mandate of providing affordable financing for SMEs in Latin America and the Caribbean.
In the past, the amounts and terms of all local currency financing operations by the IIC were matched by an equivalent funding operation. However, this approach limits the IIC’s ability to make individual loans to smaller companies, as it requires building a sizable project pipeline before funding can be obtained and resources disbursed. Going forward, the IIC will begin establishing local currency treasuries, which allow ongoing financing without having to fully match assets and liabilities for each individual operation. Consequently, small lenders will have the flexibility to borrow in their own currency.
In May 2011, for the first time the IIC established a treasury in local currency, following its second bond issue in Mexican pesos. For the first time in IIC history, part of the resources raised in the market were invested locally while waiting for future disbursements.