1. Infrastructure financing models in Latin America

    Latin America and the Caribbean’s investment in infrastructure has a direct impact in the growth of the region. For this reason, financial institutions have started projects which benefit such investment with the smaller risk and promote a greater access of the population to house financing.

    Within the framework of the 45 Ordinary Meeting of ALIDE General Assembly, the Infrastructure and Housing Financing Technical Committee meeting was carried out. It was chaired by Ana Salveraglio, president of Banco Hipotecario del Uruguay (BHU). The main topic was the “Mobilization of Resources for the Development of Infrastructure and Housing Projects”, in order to analyze alternatives to finance social Infrastructure and Housing Projects; as well as to agree on common interest activities and to promote more inter institutional cooperation.

    In such sense, Ramón Guzmán Zapater, specialist, leader in Financial Markets, from the Inter-American Development Bank (IADB), pointed out that the investment in infrastructure in the energy, water and transportation sectors have a higher impact in growth, and that Latin America and the Caribbean need to invest 5.6% of their GDP a year, some US$280 billion to close their deficit. However, the financing gap is 2.6% of the GDP, around US$130 billion, an amount under the US$143 billion that private pension funds may orient towards fixed income instruments in public infrastructure.

    To contribute to develop infrastructure, the IADB combines resources of technical assistance, loans and guarantees. For this purpose, they have launched a new policy of guarantees that maximizes leverage and return of the public capital, facilitating the private investment supporting the development banking and governments in the diagnosis, risk assessment and design of the optimal financial strategy. The guarantees cover the credit risk of the political risk; and have been underused in the past by multilateral banks. Today they are more necessary because of the infrastructure deficit, the risk aversion and the fiscal restriction in the countries.

    Visit ALIDE to read more.

  2. O B I T U A R Y : WFDFI regrets the sudden demise of Dr. Rommel Acevedo, the legendary Secretary General of ALIDE

    rommel_premio WFDFI regrets the sudden demise of Dr. Rommel Acevedo, the legendary Secretary General of ALIDE (la Asociación Latinoamericana de Instituciones Financieras para el Desarrollo), and former Secretary General of World Federation of Development Finance Institutions, to WFDFI. We shall no doubt miss him dearly in view of the great contributions he has made to the work of ALIDE, to WFDFI and to development finance community at large.

    He was 62 and survived by his wife and children.

  3. A new ALIDE Network on Business and Investments

    A new ALIDE Network on Business and Investments, which was formalized on occasion of the Meeting of the Technical Committee on this subject held in Cartagena de Indias, Colombia, during ALIDE’s  last General Assembly, ALIDE 44, May 2014.

    Fifteen development banks and DFIs signed the Memorandum of Understanding and new additional entities were confirming their participation in this operational Network. These institutions were: Banco de Inversión y Comercio Exterior (BICE), from Argentina; Banco Nacional do Desenvolvimento Económico y Social (BNDES), from Brazil; Banco Colombiano de Comercio Exterior (BANCOLDEX);  FINDETER Financiera del Desarrollo, from Colombia; Banco de Crédito y Comercio (BANDEC), from Cuba; Corporación para el Desarrollo de Curaçao (Korpodeko); Corporación Financiera Nacional (CFN), from Ecuador; Banco Nacional de Comercio Exterior (BANCOMEXT), from México; Nacional Financiera (NAFIN), from México; Banco Nacional de Fomento (BNF), from Paraguay; Fondo Ganadero del Paraguay; Banco Agropecuario (AGROBANCO), from Peru; Corporación Financiera de Desarrollo (COFIDE), from Peru; Banco Nacional de Fomento de la Vivienda  y la Producción (BNVF), from the Dominican Republic; and Compañía Española de Financiación del Desarrollo (COFIDES).

    Click here for the following documents:

    • Final Report of ALIDE 44
    • The Memorandum of Understanding: Technical and Financial Cooperation to Increase Business and Investments in Latin America and the Caribbean
    • ALIDE 2014-2015 Agreed Working Program on Business and Investments
    • List of Participants

    With this Network, ALIDE is actively promoting intra-regional business, investments and project financing in Latin America and the Caribbean. Anyone interested in this ALIDE network, should not hesitate to contact ALIDE Secretariat

  4. News from ALIDE: ICO congregated in Madrid leaders of twenty countries development banks

    The V Meeting of Latin America and Europe Development Banking Institutions was successfully held in Madrid, and was opened by the Secretary of State for Economy of Spain, Fernando Jiménez Latorre.  For two days, more than 100 representatives from 20 countries participated in different discussion panels and bilateral meetings. .

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  5. Meeting To Be Held on March 17 Montevideo will receive ALIDE’s Board of Directors

    On March 17, the CXXIX ALIDE’s Board of Directors Meeting will be held in Montevideo, Uruguay. The members will also attend – in the same city – to a seminar organized by ALIDE and the Banco de la República Oriental de Uruguay (Bank of the Oriental Republic of Uruguay – BROU), and to the Annual Board of Governors of the Inter-American Development Bank Meeting (BID). 

    During the meeting, institutional subjects will be addressed, the work program progresses 2012-2013 will be analyzed and the final details of the 42° ALIDE’s Shareholders’ Meeting will be defined. This meeting will focus on the inclusion from the bank of development banking and it will be held in Quito, Ecuador on May 8 and 9.

    As was stated before, the Board of Directors members are: ALIDE’s Chairman, Rodrigo Sánchez Mújica, who is also general director of Fideicomisos Instituidos en Relación con la Agricultura (FIRA) -Banco de México (Trustfunds created in Relation to Agriculture – Bank of Mexico); the Vice-chairman Fernando Calloia, who is also Chairman of the Banco de la República Oriental del Uruguay (BROU); and the directors: Mauro Alem, chairman of the Banco de Inversión y Comercio Exterior (BICE) (Investment and Foreign Trade Bank) of Argentina, Fernando Antún, general manager of the Banco Nacional de Fomento de la Vivienda y la Producción (BNV) (National Bank of Production and Housing Promotion) of Domincan Republic, and Santiago Rojas, chairman of the Banco de Comercio Exterior de Colombia (Bancóldex) (Colombian foreign trade bank).

    Rommel Acevedo, ALIDE General Secretary, is also a Board member.

  6. ALIDE launches awards 2011

    Latin America and the Caribbean Developing Banking has become a source of permanent innovation in developing technologies, financial and non financial products and services that are made available to productive and social sectors.

    The relevance of developing banking is shown in its never-ending activity creating and
    developing markets in its activity, strengthening and developing new non banking financial intermediaries, and by giving access to the financial system to important segments of the population that have a limited access to the traditional banking services.

    This important contribution will be acknowledged by the Latin American Association of Development Financial Associations (ALIDE), as the representative body of the Latin America and the Caribbean developing banking, will award the most relevant practices of financial and non financial products and services, as well as the work on social and environmental responsibility performed by the regional developing banking.

    ALIDE Awards 2011 aims to identify and honor the best practices and innovations in products and services in Latin America and the Caribbean developing banking, in order to acknowledge and highlight the work of these institutions in the development financing of their countries.

  7. ALIDE’s agricultural financing looks for the design of products with greater social impact

    Development banking provides agricultural and rural sectors with more than credit, as it allows for technology and technical assistance in the country; however, is it really generating the impact that it looks for? ALIDE Technical Committee on Agricultural and Rural Financing examined this subject at the ALIDE 40th assembly (ALIDE 40) and synthesized some proposals.

    In Latin American and the Caribbean countries (LAC), there is a low financial penetration, which is even lower within the rural area. Development financial institutions reach the rural sector to a greater extent; however, its penetration is not sufficient in order to meet the needs and to support the small-scale producer

    By having difficulties to access the financial system, these small-scale producers have no other option but to turn to loan sharks, who charge them extremely high interests. This will prevent them from producing a surplus in order to move out of poverty and to improve their economic and social situation.

    This is the vicious circle that characterizes the segment of the population with lower resources and was one of the topics addressed in the ALIDE Technical Committee meeting on Agricultural and Rural Financing, within the framework of ALIDE 40, in Fortaleza (Brazil).

    In this meeting it was discussed that, although development banks have enough resources to guide and finance agricultural producers, they do not always meet the demand, as it is not effective but potential, as a great portion of producers are not considered eligible for credit, do not generate the sufficient production surplus to be located in the market and gradually become poorer. Even though credit is a powerful mechanism for development, they need to have access to technology, to generate incomes, to go into partnerships and to organize.

    The phrase “they are not considered eligible for credit, therefore, they do not have access to the financial system” is commonly heard, so the logic question is: who does not consider them eligible for credit? Because they notice that rural producers are not considered eligible for credit by private banks, but by development banks, and those that are not considered eligible for credit by development banks, are considered eligible for credit by cooperatives or non-banking financial intermediaries.

    This can indicate three points:

    (1) that producers can be considered eligible for credit or not depending on the segment to which they belong or in which the financial entity specializes, and this is reflected on the type of client and the loan average amount;

    (2) that technology, be it financial or activity-support ,used by financial entities is not appropriate to attend segments that are out of their scope of attention; and

    (3) that there may be a lack of products adjusted to the demand or the need of those that are not considered eligible for credit yet. This may be due to the banking trend to focus, rather than on the design of the product, on interest rate, which although relevant, the important point is the opportunity offered by financing.

    EXPENSIVE ATTENTION

    Attending the rural sector is very expensive, as they are very dispersed. Therefore, in some countries, transaction costs are subsidized, that is, a percentage of the costs is paid to the financial intermediaries (FI) if a credit granted to the rural sector is evaluated or an amount is paid for each new credit granted to this sector. The questions in this case are: Who pays the subsidy? and Where do the resources come from? Resources generally come from the budgets; Brazil, Chile, Colombia and Mexico are an example.

    LACK OF GUARANTEES

    Another obstacle in the agricultural and rural financing is the lack of guarantees and title documents. However, there are some leading countries in these processes, such as the case of Mexico, where Fideicomisos Instituidos en Relación con la Agricultura (Agricultural Trust Funds) (FIRA) and the Mexican government have different types and modes of guarantee funds for small-scale producers. However, when the small agricultural property can be used as a guarantee, financial entities do not accept it as such, as executing them is complicated and it is unlikely that justice shall favor them.

    On the other hand, the law in Brazil does not allow small agricultural property to be used as a guarantee; and when financing is carried out through cooperatives, which receive resources from development banks; guarantees are not required since they use the joint and several guarantee system in the lending process. However, this model is not widespread in Brazil; it has not been developed in some states.

    HEALTHY HABITS

    One of the most criticized problems around agricultural financing has been the generalization of subsidies to interest rates in development financial institutions (DFI).Both the large-scale and small-scale producer received subsidized credit. This policy has really changed, there are a large number of countries that use subsidies to induce financing to the agricultural and rural sector, but do not direct it to interest rates, but to technical assistance, agricultural insurance, etc.

    So as not to jeopardize the sustainability of DFIs, it is recommended to eliminate the practice of debt relief or remission. If there were cases that justify it, this must be done with special or public budget resources that do not affect DFI balance. For example, in Brazil, the law does not contemplate remission of debt; instead, the debt term is extended.

    RISK DIVERSIFICATION

    In order to have a greater social impact and to bypass all these obstacles, a financial institution must diversify its risks, provide integral support to both agricultural and non-agricultural activities in the rural sector, and insist before the regulatory entities to reduce the excessively strict treatment of the sector, as there is still an excess of rules and regulations in the rural sector financing.

    In the product and client portfolio of financial intermediaries (FI), rural credit competes with consumer, mortgage, corporative credit, and they lend the rural sector only if the business is as profitable as those in other sectors. FI prefers the most profitable business and not the rural sector, due to the market risk and price volatility.

    Another great challenge is to have an agricultural risk management system, which includes, for example, agricultural insurance, catastrophic insurance, price coverage, although all the products do not have futures markets, and contract farming, in which large-scale companies contract producers and promise to buy the production at the end of the harvest at a specific and previously fixed price.

    What should development banking do? Do more than just grant credit, but up to what extent? Even though the field of action is different in each country, it was pointed out that development banking could provide, besides credit, insurance, financial and environmental literacy, mechanisms for coverage, information, government supporting programs management and incentives management for the promotion of financial penetration in the agricultural and rural sector.

    For this reason, it is advisable to design products that have demand, meet the needs and, at the same time, incorporate those that are not eligible for credit. In short, financial institutions with technology and ad-hoc products are required for the segment of those without access to credit.

    To the extent that the DFIs achieve adequate administration and risk management, a revolution in the agricultural and rural financing will have taken place; furthermore, when the climate change is tangible and is affecting the activity of financial institutions. In addition, funding providers may soon start to request climate and environmental risks coverage. Therefore, climate change-derived risks must be added to the present risk management.

  8. Banco do Brasil promotes Community Development Banks for the poorest

    Banco do Brasil has the highly important commitment to contribute to the economic development of Brazil’s various regions. Along this line, it has been working with Instituto Palmas on preparing methodology to create Community Development Banks.

    Community Banks are integrated financial systems that support production chains in impoverished communities situated on the outskirts of large cities or in rural areas, agrarian reform settlements, and indigenous communities.

    The basic characteristics of Community Banks are the following: (1) Management by the community itself, including the coordination and administration of financial and human resources; (2) Establishment of an integrated local trade system by stimulating production, marketing and training simultaneously; (3) Creation of a social currency, known as local currency, accepted only for commercial transactions within the community itself, being recognized and valued by local producers, merchants and consumers, and thus creating a solidary and alternative market among families; and (4) Supply of targeted productive microcredit, banking products and services, thus encouraging financial inclusion by the
    population at the base of the pyramid, without any need for people to travel to the large urban centers.

    The main objective of a Community Bank is to produce income in highly impoverished communities with heavy unemployment, by stimulating
    the creation of solidarity networks between producers and consumers in such a way that the wealth produced is invested in the community itself through the granting of microcredits to promote the production of small and micro entrepreneurs and of consumption microcredits for low-income population sectors, thereby energizing the local economy.

    Social currency is used to incentivize local production and trade. It is backed by national currency –in other words, for each unit of social currency that is issued, the Community Bank holds one unit of national currency. The difference lies in the fact that social currency is accepted for commercial transactions within the community. Several promotional and discount measures have been worked out to encourage its use, such as the fact that a unit of social currency buys more than one unit of local currency, making it more competitive.

    This competitive differential in relation to local currency favors the circulation of the wealth that has been generated within the community itself, expanding local commercial power, increasing the wealth in circulation and creating jobs and income. Producers wishing to buy something that is not available in the community can exchange specific sums of social currency for national currency in the Community Bank.

  9. Development banks lead the creation of green financial products within the region

    In ALIDE 40, the new Environmental Financing Technical Committee had its first official meeting and emphasized the need to create new financial products that encourage a more ecosystem responsible industry and projects that fight against climate change effects.

    Created in March during the Seminar on Financing against Climate Change that was carried out in the Honduran city of Tegulcigalpa, the main topic of ALIDE’s environmental committee was “Development Banking and Environmental Sustainability Support: Challenges and Opportunities in the Present Day Context”, which was used by the manager of Environmental Policies and Studies of Banco Nacional de Desenvolvimiento Economico e Social (BNDES), institution that chairs this committee, to present the document “The Green Protocol” that governs Brazilian development banking.

    ENVIRONMENTAL CULTURE
    One of the main conclusions of the meeting is that, besides complying with the environmental rules in their credit processes for the project they finance, national development banks must be engaged in the production of environmental or “green” financial products and lead the creation of an environmental culture in their countries, acting proactively, and advice their government in fostering environmental and climate financing.

    FINANCIAL TRANSFORMATION
    On the other hand, one of the critical aspects in this effort is the financial feasibility of projects resulting from the evaluation of environmental risk, for which it is necessary to have supporting funds and schemes; but, mainly, the production of financial “engineering” or “transformation” of current environmental instruments such as the CDM (Clean Development Mechanism) to turn them into effective financial tools.

    In the process of this type of instruments, it was mentioned, for example, that approximately 75% of CDM projects are formulated around only one evaluation methodology even though there are many others. Therefore, it was recommended to prepare a taxonomy of those executed or effectively financed, as a useful reference in order to facilitate the formulation of CDM projects around proven schemes.

    GREEN PROTOCOL, A GOOD EXAMPLE
    One of the ideas agreed in this meeting was it was possible for development banking to coordinate the support to public policy in environmental diffusion, as it is proved in the “Green Protocol”, a initiative within the framework of the Brazilian governmental strategies in order to introduce an environmental variable as a relevant criterion in financing projects; with which private financing agents are also expected to adjust to the system and to consolidate it.

    The Protocol is aimed at defining previous, multiplying and exemplary banking policies and practices in terms of social and environmental responsibility. Banco do Brasil, Caixa Econímica Federal, Banco da Amazonia and Banco do Nordeste signed the BNDES Protocol.

    The BNDES has promoted initiatives in the following fields:
    • Financing: “BNDES Mata Atlántica Initiative”, which considers the non-reimbursable financing of native forest restoration in permanent preservation areas on rivers banks; and the “Forest Compensation Supporting Program”, that finances the acquisition of indigenous forest for forest compensation;
    • Credit analysis and concession: edition of around 60 social and environmental procedure guides (sugar and alcohol, water and drainage; livestock, etc. and more than 50 guides under way;
    • sustainable internal practices, for example, the construction of a policy for sustainable acquisitions and tenders, the monitoring of material and energy input consumption with a greater eco-efficiency, campaigns on internal awareness;
    • Communication and training, spreading of Protocol-related commitments in all the bank’s units;
    • Best practices harmonization, through periodic meetings with all the representatives of signatory banks in order to define a common agenda
    INTERNATIONAL COOPERATION
    Financial cooperation and multilateral banking institutions such as the German bank KfW and the IADB, renewed support to the Latin American development banking through financing methodologies, lines and programs and technical assistance for environmental programs developed by financial institutions.

    KfW is ready to share its experience and tools in monitoring projects to verify the impact on gas emissions reduction and energy saving. The complexity of the monitoring challenge varies from financial sectors and instruments to the others, and the implementation of appropriate internal monitoring procedures can take from 1 to 2 years, resulting in a good argument for collaboration at international level.

    In brief, this committee intends to stimulate the analysis of environmental financing-related issues, by performing studies, technical meetings, exchanging information and experiences, as well as the development of cooperation and training programs.