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Frequently Asked Questions
Opportunities for the majority (OMJ)
For: Business with the base of the pyramid / Finance at the base of the pyramid
- What is the Majority?
- Why the OM initiative?
- Why is this a business opportunity for the private sector?
- What are the products offered by OM?
- What are the eligibility criteria for financing?
- How do I apply for Opportunities for the majority financing?
- What is the multi-donor strategic thematic Fund “Market Solutions to Mobilize Social Change”?
- Why work with the IDB?
OMJ defines the Majority as 70% of the population in Latin America and the Caribbean (360 million people) with monthly incomes under $300. This population makes up the base of the socioeconomic pyramid, a segment that has not fully benefited from the region’s economic and social growth. Not only are their basic needs in housing, infrastructure, jobs, education and health not being met, but the BoP also lacks access to basic goods and services at affordable prices due to local monopolies, high transaction costs, and common misperceptions.
The needs of the majority in Latin America and the Caribbean are so extensive that they require innovative investment approaches from both the public and private sectors. The IDB created Opportunities for the Majority (OMJ) to prove the premise that the private sector does have a critical role to play in poverty solutions. OMJ promotes and finances private sector business models that develop and deliver quality products and services, create employment, and enable low-income producers and consumers to join the formal economy. This process in turn has a multiplier effect in stimulating overall economic growth and raising the incomes of this long-ignored segment of society.
3. Why is this a business opportunity for the private sector?
Information asymmetries and misperceptions such as the poor cannot pay or do not want quality goods have limited the private sector’s response to meeting basic needs of majority markets. This situation presents excellent investment opportunities for private sector firms looking for growth, particularly given the potential for scale of inclusive business models. Majority markets represent an excellent opportunity as customers, suppliers, and distributors with an estimated purchasing power of over $5 billion.
4. What are the products offered by OM?
OMJ provides medium- and long-term loans and partial credit guarantees to support business models and market-based solutions that benefit low-income populations in Latin America and the Caribbean. Some priority sectors for OMJ participation include financial services, housing, education, telecommunications, nutrition and health.
Loans (A-Loan): The IDB provides senior loans, and participates pari-passu with all of the borrower's existing and future senior debt. Loans are secured according to market financing practices, including such guarantees as the IDB considers appropriate. Tenors typically range between 8 to 15 years and OMJ can finance up to 50% of the total project cost.
Loan and guarantees range between $3 million and $10 million, although larger operations can be considered on a case by case basis. The interest rates could be fixed or floating and are based on current market-based reference points that are set at closing. OMJ does not provide equity.
For new or "Greenfield" operations, project finance structures are particularly useful. OMJ helps to leverage the participation of other financing partners interested in the investment and can fund up to 25% of the total project cost.
Partial Credit Guarantees (PCG): Several types of comprehensive risk sharing credit guarantees are available, and the IDB has the flexibility to tailor such credit enhancements for each transaction. In such programs, the IDB covers a share of the credit risk as needed for each transaction.
The IDB financial guarantee helps to improve placement with investors and achieve better financing terms from issuers, for example. All partial credit guarantees are tailored on a case-by-case basis to provide the most effective credit enhancement of the guaranteed amount according to the needs of each client and the necessities of local capital market participants.
Risk Sharing Facilities allow OMJ to share the risk of portfolio losses with clients, effectively guaranteeing the underlying pool of microloans (or other assets). In a risk sharing facility, OMJ assumes a second loss position which caps potential losses and allows companies to enter new markets or provide new products or services.
Technical Cooperation Grants: Loans and guarantees may be accompanied by technical cooperation projects (with non-reimbursable funds) that, among other things, can be used to strengthen the structure of the loan and maximize the project’s impact. OMJ is also using technical cooperation resources to support needed studies and learning activities. Grants range on average between $100,000 to $500,000.
5. What are the eligibility criteria for financing?
All potential projects must be: (1) financially and structurally sound; (2) innovative and with the capacity to be replicated and brought to a larger scale once proven successful; (3) carried out by an organization based in one of the 48 member countries of the IDB; (4) structured to engage multiple stakeholders; and (5) range between $3 million and $10 million per operation.
6. How do I apply for Opportunities for the majority financing?
In order to apply for financing, contact OM-IDB@iadb.org or call 202-623-1000 and ask for the Opportunities for the Majority Office.
7. What is the multi-donor strategic thematic Fund “Market Solutions to Mobilize Social Change”?
To realize the potential of market-based solutions and to build a portfolio of high impact projects, the financial participation and leadership of key stakeholders from governments, business and philanthropy is critical. This is the reason why the OMJ created the strategic thematic fund Market Solutions to Mobilize Social Change, to set up a grant fund to support the shared commitment and approach of applying sustainable, innovative, market-based models to address market failures that directly affect low-income communities in Latin America and the Caribbean. Through this fund OMJ is working to leverage resources to support innovative grants to address the needs of low-income populations, as well as the dissemination of lessons learned and good practices or what works and why with respect to BoP business models across the region.
In its five decades of activity, the IDB has become the largest regional multilateral development bank in the world, and has built a solid reputation as a reliable business partner with vast knowledge of Latin America and the Caribbean. Through OMJ, the IDB is now also the first multilateral development bank that has dedicated staff and resources to identify, design and finance private-sector solutions to address development challenges as part of its integral approach.
The IDB has offices in each of its 26 borrowing member countries that engage in a permanent dialogue with government, as well as the private sector, and has developed strong ties with local organizations, communities, academic centers and other market participants in every corner of the region, often acting as a catalyst to generate synergies and public-private partnerships. This expertise, market intelligence, and dedication to supporting majority markets makes the IDB an invaluable partner for companies and financial institutions that are seeking to innovate and invest in this growing and underserved niche, adding credibility to their work in base of the pyramid projects in the region.
