25,000 microentrepreneurs expected to gain access to working capital

Microfin will get a partial credit guarantee for 51.4 million Uruguayan pesos from the Inter-American Development Bank (IDB), paving the way for one of Uruguay’s leading microfinance institutions to expand access to financial services for as many as 25,000 microentrepreneurs who own small stores in periurban areas.

The partial credit guarantee will help Microfin gain access to funding in local currency from Citibank’s unit in Uruguay by lowering its credit risk. The operation will allow Microfin to scale up an innovative program to offer credit and other financial services to microenterprises through partnerships with large-scale food and consumer goods wholesalers.

Under these partnerships, wholesalers share information with Microfin about the repayment performance of their microentrepreneur clients. Microfin will use this information to assess credit risk and provide credit lines for the purchase of goods from the supplier and, at a later stage, offer other financial services, specifically tailored to the needs of microenterprises.

“With this project, we are promoting greater financial access to the base of the pyramid and we expect this innovative partnership to have an important demonstration effect in other countries in Latin America and the Caribbean,’’ said Lourdes Gallardo, the project team leader at the IDB’s Opportunities for the Majority Initiative. “It’s a win-win situation. Microenterprises will be able to access tailored financing on better terms and wholesalers will be able to sell more goods without incurring the risks and costs of financing.”

The project supports Uruguay’s efforts to increase financial inclusion, at a time sustained economic growth has fueled demand from credit by the microenterprise sector. About 95 percent of formal companies in Uruguay are micro and small enterprises, employing over 60 percent of the country’s economically active population. More than 180,000 microentrepreneurs are currently in a position to access financing, according to the country’s national statistics institute.