Brazilian State of Santa Catarina to Expand Small Business Financing, with IDB Support

The Inter-American Development Bank (IDB) has approved a $50 million loan to the Agência de Fomento do Estado de Santa Catarina (BADESC) in Brazil to boost the economic performance of individual entrepreneurs and micro, small, and medium-sized enterprises (MSMEs) as the state continues to recover from the pandemic. 

MSMEs are crucial to reactivating Santa Catarina’s economy. They make up 99.5% of the state’s businesses and create 54% of its jobs. However, they struggle to get loans, particularly if they are led or owned by women. A recent survey conducted by the IDB in partnership with Sebrae Santa Catarina and the BADESC revealed a gender gap of 7.3 percentage points in credit application approval rates. In addition, 82% of women-led or women-owned businesses say they apply for less credit than needed so that their applications are not rejected, compared to 30% for men. 

In this context, the Financing Program for the Productive and Sustainable Recovery of MSMEs in Santa Catarina will allow over 3,000 of these businesses to get the financing they need to bolster their production capacity. The program, which has been approved by the IDB's Board of Executive Directors, aims to diversify the state's business ecosystem, with an emphasis on its most competitive sectors. It is also designed to close gaps in access to credit for MSMEs owned or led by women and promote energy generation and efficiency projects that help mitigate the impact of climate change.

The program has two components. The first will provide direct financing to MSMEs for production-related investments through BADESC's medium and long-term loans. The second will offer financing through microcredit institutions to smaller borrowers in urban or rural areas, including individual entrepreneurs and micro and small enterprises. Because of the program's emphasis, a significant portion of the resources are earmarked for financing women-owned and women-led MSMEs and energy generation and efficiency projects. 

This is the IDB's first operation with BADESC, and it includes technical support to the agency as it implements the program. The support will focus on strengthening institutional capacity to expand BADESC’s green credit line, enhance its environmental and social risk management system, and explore new sales channels using fintech. The IDB and BADESC are also working on a pilot implementation to better monitor the program's impact on its end beneficiaries using the IDB's digital platform ConexApp.

The $50 million IDB loan to Brazil has a 25-year repayment term, a 5-year grace period, and an interest rate based on the Secured Overnight Financing Rate (SOFR).