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El Salvador will expand financing for 10,000 small businesses with IDB loan

 

El Salvador will expand access to financing for approximately 10,000 urban and rural micro-entrepreneurs, mostly women, with an Inter-American Development Bank $4 million loan.

 

“In El Salvador, there is a high number of banks and non-bank institutions that provide financial services for micro enterprises, mainly focused on commerce, industry and services,” said IDB team leader Carmen Cristina Alvarez-Basso. “But only 15% of micro enterprises have access to financial services, and rural credit lines are very limited, perceived as high risk.”

 

The IDB Board of Directors approved the loan on Wednesday December 10.

 

The IDB will fund the Fideicomiso para el Desarrollo de la Micro y Pequeña Empresa (FIDEMYPE) which in turn will fund approximately 23 non-bank financial institutions that ultimately will be lending to thousands of low-income microentrepreneurs. Currently, 69% of the clients assisted by these financial institutions with FIDEMYPE’s funding are women.

 

This operation, from the IDB Opportunities for the Majority (OM) initiative, promotes partnerships among the public sector –the Government of El Salvador is one of FIDEMYPE´s trustors and the Banco Multisectorial de Inversiones, its trustee is a publicly-owned financial institution– and the private sector and civil society.

 

The IDB Opportunities for the Majority initiative supports strategies that make the benefits of economic and social development accessible to the majority of the population in Latin America and the Caribbean. OM promotes and finances business models that link private sector companies with local governments and communities in order to develop and deliver quality products and services for low-income sectors.

 

FIDEMYPE is a trust fund that has developed a unique risk qualification methodology for non-regulated microfinance institutions, assessing credit, financial and operating risk. FIDEMYPE offers credit lines, through the non-bank financial institutions, to micro and small enterprises to finance commerce, industry services and agro business, in addition to financing for subsistence businesses through solidarity group credit lines and communal banks in the poorest populations of the country through a special fund.

 

FIDEMYPE will complement the IDB funding with $1.2 million from its own resources and expects to obtain additional funding through European institutions to increase its portfolio to up to $20 million in six years.

 

The IDB has previously provided a loan and technical cooperation to FIDEMYPE through a social entrepreneurship program for non-regulated institutions operating in the poorest rural areas of El Salvador. The new facility will allow FIDEMYPE to increase its lending and to provide longer tenors.  Another operation currently under preparation will provide assistance and training to strengthen the management and financial soundness of the participating non-bank financial institutions.

 

 

The proposed model is expected to be replicated and scaled-up in other countries in the region.

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