Álvaro R. Ramírez, Chief, Micro, Small and Medium Enterprise Division

More Than a Bank

"Before the Bank came here, we only had a shed and practically nothing else." This sentiment, expressed by a group of farmers who successfully replaced traditional coffee growing with the more profitable production of honey from special bees, is common among the beneficiaries of the assistance provided

by the IDB to private organizations such as NGOs, cooperatives and other associations through the Social Entrepreneurship Program (PES). With it, the Bank has responded to the needs of thousands of microentrepreneurs who otherwise would not have had access to financial services and business development.

In 2003, the IDB produced a retrospective of its 25 years of experience working toward the development of micro and small enterprise in the book Macro Impacto con Micro Dinero, which was presented by President Iglesias at the VII Forum. It details the pioneer work initiated in 1978 when the Bank decided to venture into the risky business of providing assistance to a segment of the population about which little was known and which was generally dedicated to activities that were not part of the formal economy. For 25 years, the Small Projects Program—which in 1998 changed its name to the Social Entrepreneur Program—has invested a total of 318 million USD in nearly 600 projects in Latin American and the Caribbean. Funds have come not only from the Bank, but also from trust funds financed by Sweden, Switzerland, Norway, Japan, Italy and the European Commission.

However, the novelty is not simply the type of beneficiaries or risk involved with working with private groups without government guarantees. It also concerns the type of projects designed with the financing tool of the PES, and with the most innovative methodologies and strategies that meet the challenges and difficulties inherent to the microenterprise sector. The program has also played a fundamental role in the successful development of the microfinance institutions in the region. From granting the seed capital to institutions, which in the end became the sector's leaders (such as BancoSol, Centro de Fomento e Iniciativas Económicas [FIE], Mibanco or Banco ADEMI), promoting sound technologies and credit practices, to developing regulated and sustainable microfinance institutions, the Bank has taken the lead in the innovation process.

But perhaps the most important achievement of the program has been its loyal commitment to the target groups. Its flexibility has enabled the Bank to penetrate those areas where, in the past, there were no services directed toward microentrepreneurs or the poor, and to experiment with new and radical ideas for projects that create opportunities for these otherwise overlooked individuals. The book Macro Impacto con Micro Dinero offers a panorama of the variety of initiatives carried out in the region during these twenty-five years. Below, Álvaro Ramírez, director of the Micro, Small and Medium Enterprise Division of the IDB, shares his opinions on the program and its future.

Microenterprise Americas (MA): Given your personal history in operations at the Bank, what was your first impression of the PES? Has your opinion of the program changed?

Álvaro Ramírez (AR): When I came to the then Microenterprise Unit in 1997, I did not have an in-depth knowledge of the scope and impact of this program despite having nearly twenty years of experience in the Bank. I knew that they were complicated and hard to execute projects for very small amounts. As I grew to understand it, I became aware of its many benefits. Beyond directly helping the neediest sector of the region, the program enables us to see, over very short periods, what type of impact we have and be certain that the Bank's contribution effectively reaches the sector and is not tied up in bureaucratic channels. The PES is the Bank's only tool that directly reaches the microenterprise sector, and as such, it is unique and revolutionary. Given its structure, the program is virtually immune to the political fortunes of the region and the consequent changes in players and it is flexible when it is time to make changes in its execution. These factors enable us to guarantee results. Even so, the most important element of the PES is the human factor. From the identification of projects by the division's specialists and the selection of the local executing agency, to the monitoring performed by the Bank's staff in the country, the dedication of individuals is essential to the success of the project.

MA: What have been the biggest challenges during the years that you have worked with the PES?

AR: On the one hand, we receive and analyze hundreds of applications every year. In this analysis it is vital to select initiatives that can be carried out by the organizations that propose them and continue to operate after the flow of money from the Bank has ended. On the other hand, it was a challenge to establish an operating structure for the then Microenterprise Unit so that we could design projects that are both sustainable and responsive to the microenterprise sector. This led us to re-initiate collaboration with other donors and obtained funds from the Norwegian Agency for Development (NORAD) cooperation, among many others, in order to continue to operate. Thanks to the priority the Bank's president has given to the sector, we receive 6 million USD annually to support microenterprise.

MA: How has the PES performed in response to the challenges of the microenterprise sector? In what way has this program been particularly successful?

AR: The PES was able to respond to the needs of the sector because of its flexibility and openness to all types of projects, from goat raising to granting seed capital for microfinance institutions. The microfinance industry has benefited such that nearly all the leading microfinance institutions have received capital from the program at some point in their growth. Nowadays, the Multilateral Investment Fund (MIF) sows the seeds that the PES planted since it serves the largest and already mature institutions that originally participated in some project with the PES. With the PES, we are serving NGOs with potential for growth that need to increase their competitiveness, and which while mature, could participate in projects with the MIF.

MA: How do you see the role of the PES within the portfolio of IDB support in the region?

AR: Now that support for the microenterprise sector is a sexy subject, we are working alongside other departments in the Bank. Curiously, some PES projects serve as pilot projects for larger scale ones or in loan operations. This is the case of some projects in Guatemala with coffee growers and in Panama with rural projects. And as I mentioned before, the PES is especially useful because it can show short term impact results.

MA: When President Iglesias presented Macro Impacto con Micro Dinero, he concluded his speech by quoting you: "We are going to continue ahead with a limit: the sky." In less ambitious terms, what will the future direction and strategy of the PES be? What will be the new challenges to the program over the next few years?

AR: Considering that microenterprises comprise at least 90% of the total number of enterprises in Latin America, the PES will continue supporting the sector, helping NGOs improve their institutional capacity so that they in turn better serve microenterprises. Day-by-day, the challenges are in the big countries in which the microfinance sector is still nascent; in rural areas, which are underserved by the most successful microfinance institutions; and in the development of new products appropriate for microenterprises.