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The IDB and microenterprise

The Inter-American Development Bank has long supported microenterprise as part of its efforts to promote private sector growth, expand economic opportunities for the poor and reduce income inequality in Latin America and the Caribbean.

In this region alone there are some 57 million of these tiny businesses, which provide jobs for more than 100 million people. From a development standpoint, microenterprises help alleviate poverty and stimulate economic activity, generating income for people in vulnerable groups, such as female heads of household and underprivileged youths. During crises, the economic and social networks formed by microenterprises constitute a line of defense for the poor.

Since 1978 the IDB has approved more than $1 billion for microenterprise development. This assistance has ranged from large-scale loans to expand access to credit to small grants to strengthen rural cooperatives or microfinance institutions (MFIs). The IDB also supports regulatory reforms, supplies technical assistance and disseminates best practices to help improve the business climate for microenterprises.

The IDB was an early backer of many of the institutions that led the microcredit revolution in Latin America. Its operations have strengthened nongovernmental organizations (NGOs) involved in microfinance, many of which have become regulated and supervised MFIs.

Through its Micro, Small and Medium Enterprise Division and its Multilateral Investment Fund (MIF), the IDB continues to work with microfinance pioneers to expand the industry, which has attracted the attention of major commercial banks and institutional investors.

The IDB supports investment funds specialized in MFIs as well as a groundbreaking emergency liquidity fund that helps these lenders overcome credit crunches caused by political and economic crises or natural disasters such as hurricanes or earthquakes.

Research and knowledge dissemination is another area of IDB activity. Its annual Microenterprise Forums bring together hundreds of experts and practitioners from NGOs, banks, credit unions, community-based organizations, consulting firms, foundations, investment funds, aid agencies and government institutions involved in microenterprise. The next forum will be held in September in Quito, Ecuador.

The IDB also awards prizes to recognize the outstanding contributions of institutions and individuals who support microenterprise development and social entrepreneurship in Latin America and the Caribbean.

During 2005 the IDB and Brazil’s BNDES national development bank signed a first $1 billion loan from a $3 billion conditional credit line to expand access to medium- and long-term lending for micro, small and medium-size enterprises.

The IDB’s Social Entrepreneurship Program, which supports community-based economic and social development projects, approved $13.1 million in loans and grants for projects to promote skills training for Salvadoran youths, drinking water services in rural communities and alternative guarantees for agricultural credit in Bolivia, “biofuel” production in Paraguay, solar-powered electricity in isolated Nicaraguan communities, entrepreneurship among young Hondurans and the modernization of microentrepreneurial machine shops in Costa Rica.

The MIF approved more than $20 million in financing for a range of microenterprise-related projects, including programs to expand agricultural microcredit and microfinance services in rural areas as well as to promote the participation of microentrepreneurs in sustainable tourism ventures and productive chains in countries across the region.

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