IDB approves two credit lines totaling USD$650 million for El Salvador

Focused on education and access to credit, these lines of credit come with approval of the first transaction in each of them, for a total of USD$300 million.

The Inter-American Development Bank (IDB) announced today its approval of two conditional credit lines for investment projects (CCLIP) in El Salvador totaling USD$650 million. This support aims on one hand to improve human capital by boosting the quality and scope of the country's education system and, on the other, to promote production and social welfare through access to credit in the business and housing sectors.

The first individual operations as part of these CCLIPs, for a total of USD$300 million, are designed to support expansion and improvement of educational quality, with special emphasis on early childhood and poor people, sustainability and the economic recovery of micro-, small-, and medium-size companies (MIPYMEs in Spanish) hurt by the COVID-19 pandemic, respectively.

Improving the scope and quality of education
Seeking to improve the quality and scope of education in El Salvador, the IDB approved a CCLIP totaling USD$250 million. Its main goals include expanding and enhancing the quality of education in the country, especially in early childhood services; boosting the availability of education for poor youths, with a focus on gender; and enhancing the effectiveness of educational management. 

In El Salvador, nearly half of all children under the age of seven live in poverty. In early childhood, kids must develop cognitive, language, motor and socio-emotional  skills that allow them to start school ready to learn. But gaps have been detected in this development of these skills in Salvadoran children. A lower level of learning and skills during childhood is also observed when these kids reach adolescence. More than half of them do not complete secondary education, which limits their job prospects.

In order to meet those challenges, the strategy of the operation will be to improve the scope and quality of the education system through investments to strengthen teaching models in early education and flexibile modalities in secondary education; ensure adequate space for learning in early and nursery education, and boost the management system so as to follow up on students' progress and on decision- making. The goal is to increase the number of children attending early and nursery education, and increase the proportion of young students in flexibile modalities that pass the Secondary Education Learning Test. 

The initial loan that was approved, for USD$100 million dollars, has a reimbursement period of 25 years and an interest rate pegged to the LIBOR.

Support for production and social welfare through access to credit
The goal of the CCLIP that was approved, to the tune of USD$400 million, is to promote productive actitivy and social welfare in El Salvador through access to credit in the business and housing sectors.

The first individual operation in this CCLIP, for USD$200 million, will be executed by the Republic of El Salvador Development Bank (BANDESAL). The resources of the program will be intermediated by the first-tier financial institutions with places on the second-tier lines of BANDESAL. It is aimed at helping more than 8,000 MIPYMEs from all sectors of the economy for recovery in the post-emergency period COVID-19, through access to productive credit for working capital and investments in fixed assets.

In response to the challenges of MIPYME financing, the program has an approach that addresses gender and mitigation and/or adaptation to climate change, as it calls for granting credit to MIPYMEs run by women and those with potential for mitigating or adapting to global warming.

The first loan approved, for USD$200 million, has a reimbursement period of 25 years and an interest rate pegged to the LIBOR.

The CCLIP that was approved has the Social Fund for Housing (FSV in Spanish) as the executing agency for future IDB loans supporting the financing of subsidized housing for vulnerable and low-income populations. The CCLIP will be overseen by the Secretariat of Trade and Investment, which is the liaison agency designated by the government of El Salvador.