More than $110 million of impact investing resources were mobilized by the IDB over the past 18 months to finance profitable projects that bring about social change
Despite stellar economic performance in recent years, Latin America and the Caribbean still have a long way to go to address pressing development needs, such as reducing poverty, improving educational outcomes and enhancing access to reliable health services.
To help the region make progress in these areas, the Inter-American Development Bank (IDB) has been teaming up with a fast-growing class of international investors, known as impact investors. Like the IDB, these players support private sector projects and businesses that seek to address social and environmental problems while also turning a profit.
Over the past 18 months, the IDB has mobilized approximately $110 million in resources from these investors into the region through its loan syndication program and by co-lending to finance projects that will improve housing conditions for low-income populations, benefit female entrepreneurs, help small farmers become more productive and improve rural communities.
The partnership between the IDB and impact investors has allowed the Bank to achieve important milestones in the region, particularly in small countries, often at the margin of international capital markets. Last year, the IDB closed Paraguay’s first-ever internationally syndicated loan without carrying political risk or other guarantees, by providing a $40 million A/B loan to Banco Continental to help fund lending to small and medium-sized business.
Also in 2010, the IDB disbursed its first local currency syndicated B Loan in Peru and completed a syndication with the longest tenor ever registered for a financial institution in Ecuador. In 2011, partnering with impact investors allowed the IDB to close its first syndication in Honduras and the first-ever subordinated debt syndication in Ecuador.
“There is a great opportunity for the private sector to contribute to economic development and impact investing is an important source of funding for innovative and profitable business ideas that can help alleviate poverty and improve the lives of vulnerable people,’’ said Jozef Henriquez, chief of the Syndication Unit at the IDB’s Structured and Corporate Finance Department. “At the IDB, we are leading the way in channeling these resources for Latin America, particularly to countries underserved by commercial banks.”
Impact investing is an emerging type of investing conducted by high net worth individuals, foundations and asset managers that focus on profitable projects that also produce social benefits, such as improving the lives of the poor. Impact investors have traditionally supported microfinance in several developing countries but in recent years have sought to diversify their portfolio and their impact by expanding into new sectors such as health, housing, and education.
The Global Impact Investing Network estimates that impact investments currently total more than $50 billion globally, and J.P. Morgan and the Rockefeller Foundation estimate that over the next decade the industry will grow to between $400 billion and $1 trillion in assets.
Since 2010, the IDB has closed 10 transactions with a dozen impact investors including Blue Orchard, Oikocredit, Incofin, responsAbility, Deutsche Bank Social Finance and the Calvert Foundation. Seventy percent of these syndications have been in small and vulnerable countries including Ecuador, El Salvador, Honduras and Paraguay. In these deals, the IDB has acted as sole bookrunner and lead arranger and invested $146 million of its own resources.
“Over the past year we have established a strong partnership with the IDB in which we participated in three of its syndicated loans. This partnership has allowed us to expand our lending operations to include some very high credit quality borrowers, engaging in activities that support microenterprises and SMEs that we most likely would not have been able to lend to directly,” said Yolanda Chenet, regional manager for Latin America at BlueOrchard.
“The IDB has understood our needs as a double bottom line lender engaging in activities that support the base of the pyramid. This year, we hope this partnership will allow us to expand our geographic coverage in the region and also expand into other subsegments within microfinance.”
The IDB is increasingly becoming an important partner for these investors in Latin America and the Caribbean because of its extensive knowledge of the region, sector expertise, and local networks that allow the bank to create alliances and generate a pipeline of high-impact development projects. The IDB’s culture of carefully-calculated risks, responsibility and accountability to achieve the highest development impact has also contributed to the success of this new kind of partnership.
“Working with the IDB allows impact investors to deploy capital in innovative projects to which they may not otherwise have access,” explains Kristin Dacey, syndications officer at the IDB. “It is also a winning situation for our clients since our partnership with impact investors gives them greater access to financial packages and allows them to build new relationships with international investors.”
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