OPIC award-winning project highlights value of financial intermediaries in boosting small business lending
A milestone 2013 OPIC project to support lending to small businesses in Brazil was recognized earlier this month as Trade Finance Americas Deal of the Year by the international magazine, Trade Finance. OPIC committed a $400 million loan – alongside $80 million from Wells Fargo – in the project, which supports lending to underserved businesses, mostly in the lower-income parts of the country that are so critical to the company’s economic growth and job creation.
While OPIC has long recognized the value of partnering with financial intermediaries that have deep roots in developing countries, the 2013 Itaú deal was a milestone, representing the Agency’s largest-ever disbursement to Latin America. When measured for potential developmental impact, it also received the highest score of all OPIC projects approved that year. OPIC’s financing was expected to support thousands of loans to small businesses in amounts as small as $1,000.
In addition to focusing its lending to small enterprises that would otherwise be hampered by limited access to financing, Itaú can provide loans with longer tenors than are typically available, and can complement its loans with business development services such as account management tools that are traditionally offered only to larger clients.
Here, the project lead, OPIC Managing Director, Structured Finance, Nancy Rivera, discusses some of the challenges of assembling the deal and why it is expected to have such a far-reaching impact.
What were some of the challenges putting together a deal that would achieve a positive development impact in Brazil?
Brazil is a country that has a highly-skewed income disparity. There are wealthy states where a significant portion of the country’s GDP is produced, and there are very poor states that have very little economic opportunity. In order to achieve a positive developmental impact in places like this, you have to know the country enough to be able to understand where the needs and the opportunities for economic impact are greatest.
You also have to be able to craft a program that makes the deal an attractive proposition not just for OPIC, but also for the (financial intermediary) client. The easiest thing for a bank to do is to make more loans to all of its established clients. Our role was to say: There’s plenty of money for that. Why not focus on the people who are less banked? In Brazil, like any developing country, a huge disproportionate amount of the businesses are small businesses, with very little access to loans or financial services.
What was the value of partnering with Itaú?
Itaú is one of the largest banks in the country so they have an extensive footprint that covers many of the underbanked areas. They are a good partner, not just because of this large footprint but because they recognized the potential of lending to small and medium enterprises.
What is the value proposition for banks like Itaú, which have many larger business clients, lending to smaller businesses with less of a track record?
Small business lending is a value proposition because as these bank customers grow their business so do their needs for greater and more sophisticated services. These customers return to the bank for additional loans and banking services necessary to sustain their successful growth.