Finance at the base of the pyramid
Doing business with the IDB Group
The Opportunities for the Majority Initiative (OM) promotes and finances business models with private sector participation to develop and deliver quality products and services, create jobs and help low-income producers and consumers participate in the formal economy. At the same time, this process has a multiplier effect, stimulating economic growth and increasing the income of a segment of society that has long been ignored: the 70% of the population at the “base of the pyramid”.
Through the OM, the IDB Group provides resources, know-how, 50 years’ multilateral financial experience and a network of local offices in 26 Latin American and Caribbean countries that help businesses and other stakeholders reconsider their business strategies and focus on broader development opportunities that will benefit both investors and consumers, and that will respond to the unmet demands of the low-income markets.
- The OM Facility provides medium- and long-term non-sovereign guaranteed loans of up to US$ 10 million at market rates.
- The funds are usually accompanied by non-reimbursable technical assistance agreements aimed at, among other purposes, strengthening the project’s structure and the community’s capacity to take advantage of its benefits.
For a more complete description of the OM instruments, click aquí.
- The financed project must be innovative, with the potential to be replicated and carried out on a larger scale once its success has been demonstrated.
- Its structure must favor the participation of multiple stakeholders, and it must be financially and structurally solid.
- The Borrower should be a legal entity the majority of whose voting shares are owned by entities from the IDB's member countries. The beneficiary of the financing must be a project in one of the IDB's borrowing member countries in Latin America and the Caribbean.
For a more complete description of the OM selection criteria, click here.
- Financial institutions
- Investment funds
- Venture capital funds
IGNIA, Venture Capital for Unserved Markets
Investment in sectors such as housing, health, education, basic services and nutrition not only fulfills a social mission, it also generates profitable business.
This is the concept behind the creation of the IGNIA Fund, which aims to channel venture capital resources to finance growing and commercially viable businesses interested in answering the unmet needs of the communities at the “base of the pyramid”.
The IGNIA Fund selects projects with potential to be replicated on a larger scale, thus increasing their economic and social impact. With this in mind, it has begun by financing Primedic to provide quality health services for low-income families in Monterrey, Mexico, and in Jardines de Grijalva, an affordable housing development in Chiapas, Mexico.
The IDB is supporting the fund with a US$25 million loan, a capital investment of US$5 million from the Multilateral Investment Fund (MIF) and a $205,000 grant from MIF itself for technical assistance.
The loan provided to IGNIA in 2008 was the first one made under the OM Initiative. This project demonstrates the IDB’s capacity to create associations aimed at increasing investment in majority markets and boosting resources that attract new investors with know-how, experience and the capacity to develop projects that have a significant impact on improving the quality of life of low-income communities, while offering attractive benefits for investors.
Innovative solutions from FIDEMYPE
Microenterprises and small businesses in El Salvador employ 59% of the work force and generate 49% of GDP. However, many of these organizations, in particular those with low income and located in rural areas, do not have access to credit.
The Fondo para el Desarrollo de la Micro y Pequeña Empresa (FIDEMYPE) is a unique project in El Salvador. Begun in 2000 with the support of the Salvadorian government and the European Union, it provides funds to unregulated micro lending institutions which, in turn, provide loans to microenterprises and small business ventures. FIDEMYPE is the only second-tier fund in the country that uses this financing model.
Recognizing the importance of how FIDEMYPE – which does not receive funds from the Salvadorian Central Bank or from other official institutions – offers financing options in completely unserved markets, the OM Initiative has provided FIDEMYPE with a US$4 million loan for it to increase access to financing for 10,000 rural and urban micro lenders. Before the loan, the Fund received US$ 1.25 million in resources and grants from the Social Entrepreneurship Program of the Multilateral Investment Fund (MIF).