OMJ Portfolio 2012 ENG

OMJ PORTFOLIO 2012

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Our 2012 portfolio of projects exemplifies what we at the Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ) do best: forge innovative partnerships and launch business models from existing distribution platforms to bring a broad selection of goods and services to people living at the base of the economic pyramid in Latin America and the Caribbean.

OMJ’s overall portfolio of loans and guarantees has reached $240 million since it began operations in 2008. The ten projects approved in 2012, for a total amount of $60 million, offer banking and insurance, housing, quality education, jobs and the chance for low-income citizens, entrepreneurs and communities to lead better lives.

Our 2012 projects build on our past achievements. By using their payment histories with distributors for creditworthiness, Microfinanzas S.A. Mayorista program offers credit for expansion and higher profits to Uruguayans who own small shops. RAFCASA rents Nicaraguans homes they want to buy and uses their rent payments to qualify them for a mortgage. Similarly, with the IDB’s support Prodel will expand financing for community infrastructure and incremental home improvement projects in Nicaragua.

In Haiti, two projects benefit the BoP. Alternative Insurance Company offers a wide swath of the population affordable insurance through established micro-finance platforms; and—responding to demand from the United States for quick turnarounds of small quantities of high-end clothing—Industrial Revolution II is training Haitians to operate sophisticated machinery and is paying commensurate wages. Focused on the potential of small and mediumsized enterprises, PymeCapital offers credit to these businesses to boost their income and that of small producers in nine countries in Central and South America.

Our new portfolio also creates first of a kind institutions in Latin America. Manduvira, a cooperative of fair trade organic sugar producers in Paraguay will build its own processing plant and gain autonomy from middlemen. The first cooperatively owned bank in Paraguay is being created thanks to our support: BANCOP will offer small farmers the long term lending they need to grow their businesses.

As businesses attract and retain new consumers at the base of the pyramid, our projects reflect the market demands of those we serve. Upwardly mobile Peruvians who realize that a good education is a proven path out of poverty want to invest in their children’s education. OMJ support for Colegios Peruanos brings topnotch private schools into modest neighborhoods for affordable tuition. Also in education, OMJ decided to strengthen and expand its support to an old project, FINAE, which offers education loans to Mexican college students.

Consistently and certainly through our new portfolio, OMJ projects find ingenious ways for businesses to make a profit as they make a difference in the lives of hundreds of thousands in Latin America and the Caribbean. And as businesses attract and retain new consumers at the base of the pyramid, our projects reflect the market demands of those we serve.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Accessible Insurance Solutions for All Haitians Boosting a Local Insurer Haitians of all economic levels are interested in buying insurance products, increasingly so in the aftermath of the devastating earthquake of 2010. One traditional insurance company whose reputation was enhanced after honoring an unprecedented number of claims stemming from that earthquake has a strategic growth plan to expand services and products to the most vulnerable Haitians.

Haitian-owned Alternative Insurance Company (AIC) is making insurance more accessible with a plan to expand affordable funeral and credit life insurance in the lower-income market and to create new microinsurance products. Yet AIC’s financial reserves were depleted after the earthquake and despite strong growth the company needed to close an equity gap.

The Inter-American Bank’s Opportunities for the Majority Initiative (OMJ) is a critical catalyst in the recapitalization of this market leader. OMJ is lending AIC $2 million in the form of subordinated debt as part of an overall $8 million recapitalization plan and has played a critical role in mobilizing investors from the US, Canada, Mexico and Haiti to invest in the private, Haitian-owned company.

More Insurance for the Poor While AIC is the top micro-insurer in Haiti serving lowincome communities that are largely excluded from the formal financial sector, it currently does the bulk of its business through traditional insurance products for auto, commercial, property, health and life. The company is estimated to have a third of the Haitian insurance market.

Responsible handling of an unprecedented number of claims in 2010 spread word of AIC’s good practices and helped increase its market share. The company is profitable and growing fast, with record premiums and net income in 2011.

People at the base of the pyramid are more vulnerable to the effects of catastrophe, illnesses and a death in the family— especially if that person is the household breadwinner. Funeral costs can bankrupt a family. Losing a house in a natural disaster can be ruinous.

AIC offers micro-insurance for funeral and credit life and is expanding its portfolio of mass-market offerings for low-income Haitians, who make up the vast majority of the population.

Products being developed are tailored to a population with little access to credit and few, if any, assets. The policies would pay off microloans in case of catastrophe or hospitalization and offer a savings benefit as part of life insurance.

Wider Reach through Platforms Working through micro-finance institutions and other existing platforms to make insurance accessible to as many people as possible while keeping premiums affordable, AIC aims to double its customer base over five years. Base of the Pyramid business is expected to grow at an average of 35 % for funeral policies and 10 % for credit life.

Olivier Barrau, AIC’s founder and CEO says: “We want to improve lives of those less fortunate and piggyback on structures that are already in place to keep costs as low as possible.” As a result, and thanks in part to the structuring of certain premiums, AIC’s renewal rates for funeral insurance have skyrocketed.

Raising Industry Standards A winner of the 2008 Pioneers for Prosperity award, which aims to create greater prosperity in emerging markets by harnessing the power of private enterprise solutions to poverty, AIC is working to solve the question of how to bring insurance to the poor. It is also working to move the country’s industry standard towards greater transparency and bring it more in line with international norms and standards.

OMJ’s support of AIC’s recapitalization is helping lowincome Haitians increase their access to insurance while strengthening the country’s insurance industry.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Partnering for Better Basic Services across Latin America: Boosting Business Models Melding Expertise and Financing Many private companies in Latin America and the Caribbean have innovative ideas of ways to do business providing basic services such as health care, education, energy, and water to people at the base of the socio-economic pyramid. Yet these pioneering businesses need expert know how and funds to test their ideas in the marketplace so they can be ready to absorb the financing needed for their transformation to commercial viability.

The Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ) and the Multilateral Investment Fund (MIF) launched in 2012 the Program to Accelerate Business Providing Services to Poor and Low-income Communities bringing critical technical expertise to a vital new partnership that fills an important gap in the market and connects businesses with new consumers while improving the lives of low-income populations.

OMJ and MIF are mobilizing this novel instrument that melds their experiences developing business models and distribution platforms with grants to speed up the development of basic services business models so they are ready to absorb credit from OMJ and attract other impact and commercial investors.

Faster Models to Markets In the first semester of 2013, through the Program to Accelerate Businesses Providing Services to Poor and Low-income Communities up to eight pre-commercial business models will be supported in Latin America and the Caribbean to bring new or improved access to health, education, energy, water, and sanitation services to thousands of poor and low-income households in the region.

OMJ and MIF will work in partnership on this new $3.4 million regional program, jointly selecting companies that receive technical assistance grants up to $250,000 to bring their pilots to scale in a low income marketplace.

OMJ and MIF together will develop eligibility scorecards to select the business models with the most potential and decide how best to fast track these pre-commercial businesses to market readiness through rigorous tailoring of the technical assistance. The program helps firms to determine the best procurement channels, management, business practices, and products for their local markets.

Gauging the interest of customers at the base of the economic pyramid and finding ways to reach them affordably is a crucial question for businesses. OMJ has cracked that code by working through proven distribution channels. In this program, it teams up with MIF which has 20 years of experience in private sector capacity building and grant-making, to develop and expand distribution channels and marketing strategies.

Businesses supported through the program range from start ups to small and medium-size enterprises, to subsidiaries of large companies.

Attractive Models for Investors OMJ’s success in commercializing ways of delivering basic services to people at the base of the pyramid is a cornerstone of this new program. OMJ’s expertise in identifying and scaling business models and distribution platforms is crucial to the new partnership. And MIF’s proven system of measuring and tracking the social and economic performance of its projects is important so that private companies can attract impact investors.

Thanks to the program, five business models are expected to reach scale and be ready to accept OMJ credit.

The program will disseminate and share lessons learned via networks of social investors at workshops and conferences, online publications, videos and other media.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Quality Education for Peru’s Emerging Classes Better Schools at Better Rates Upwardly mobile Peruvians who want to invest in their children’s education have few choices of private elementary and secondary schools that provide solid and modern academic grounding at reasonable rates.

Finding topnotch yet affordable private schools in emerging neighborhoods where they live is even harder.

The Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ) is supporting a sustainable and market-based solution for Peru’s emerging social classes. Colegios Peruanos is a private company whose schools will help children obtain an education on par with international standards and give them competencies to be citizens and employees in modern economies.

OMJ is lending Colegios Peruanos up to $15 million to grow its network of private “Innova Schools” from five to 26, and increase its student body by 23,000 by expanding two existing schools and building 21 new ones in upwardly mobile neighborhoods in Lima and other Peruvian cities.

Colegios Peruanos as a Solution Despite increased enrollment and graduation rates, Peru’s educational system needs improvement. In 2009, Peruvian students scored 63rd out of 65 worldwide on the international standardized PISA test, last of nine Latin American countries.

Many factors, including low public investment in education and poor teacher training, contribute to these scores.

Yet Peru’s sustained economic expansion has led to greater demand for good education from upwardly mobile Peruvians.

Parents are willing to make economic efforts to provide their children with the best academic opportunities.

Colegios Peruanos is working to meet that demand and turn test scores around. The company specializes in construction, operation and management of private primary and secondary schools for emerging social classes in neighborhoods where few exist.

Innova schools educate children between the ages of 3 and 18. They focus on technology and intensive use of English, currently for an average $107 monthly tuition. Educational models are based on life-long learning competencies, inquiry and collaboration are designed along international standards.

Innova’s teachers are recruited from Peru’s top institutions and receive on-the-job formation, coaching and bilingual training, to master Innova’s modern curriculum, lively and interactive instruction. They are motivated to improve their performance and boost student learning through proven incentives.

OMJ aims to partially finance and assess the impact of Colegios Peruanos’ academic model. Results will be used to share best practices and increase the potential for the model’s most promising aspects to be replicated by private and public sectors in Peru and elsewhere in Latin America.

A Model to Benefit Many Colegios Peruanos has an efficient business model that is sustainable and market-based. Its network of schools achieves economies of scale for management costs and back office expenses.

Colegios Peruanos’ expansion will cost $74.7 million and reach new markets in Peruvian cities, including Trujillo, Huancayo and Piura. In addition to OMJ’s loan of up to $15 million, IDB is mobilizing international lenders to raise additional financing of up to $25 million, involving both B and parallel lenders. After this initial expansion, sponsors seek to open up to 70 schools across Peru.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Introducing High Value Apparel Manufacturing in Haiti Radical Departure for Clothes Manufacturing As Haiti rebuilds its textile and apparel industry from the damage inflicted by the earthquake of 2010, the country is introducing a radical new business model: production of high-end apparel manufactured by skilled Haitian workers using sophisticated machinery.

With support from a loan of up to $1 million from the Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ), Industrial Revolution II LP (IRII) will retrofit and equip a garment factory and train low-income Haitians from the base of the socio-economic pyramid. As they add value to Haiti’s economy, these local apparel workers will produce high-end fashion on the latest manufacturing technology while working for living wages in a safe and healthy environment.

A New Philosophy for Added Value The textile and apparel industry is Haiti’s largest manufacturing sector, accounting for 80% of exports and around 10% of GDP in 2010, before the earthquake struck.

Most clothes made in Haiti are exported to the US, which has given the impoverished country preferred access to its markets as a way to help boost Haiti’s economy.

Yet, because Haitian labor costs are among the lowest in the world, American mass-market producers and retailers have to date only manufactured high-volume, low commodity clothes such as undergarments there.

American fashion designers and retailers are looking for nearby suppliers to respond quickly to changing market needs with smaller runs of high-end apparel. In response, IRII brings a new philosophy to clothes manufacturing and Haiti’s image as a reliable supplier of quality fashion.

As IRII fills a gap in the market, it will capitalize on an untapped development opportunity. It will import machinery to produce better quality goods in smaller volumes for higher

profit margins. And it will invest in workers; training up to 200 low-income Haitians living, as the vast majority of the country does, near the poverty line. Most will be women with basic sewing skills. IRII will allocate up to half of its profits into employee and community programs, an investment that will remain in country.

Empowered Team Manufacturing IRII will buy and import state-of the-art equipment to cut, spread, sew and embroider clothes, as well as top of the line digital printers. And the company will introduce new, teamwork manufacturing. Gone will be rows of workers at sewing machines stitching one part of a garment.

All IRII employees will be trained extensively in Haiti, and some in the United States, to perform each task of a modular manufacturing process.

Initially, IRII products will focus on upscale knit tops.

Digital printing allows a wide range of designs and colors, so that the clothes meet fast fashion demands at competitive prices. IRII’s products will be co-branded with the brands of designers and leading retailers in North America.

As IRII employees will be involved in the process from start to finish, they will be able to respond more quickly and efficiently to manufacturing changes. Also, they will have a stake in the company’s success; this higher degree of employee empowerment will result in more job satisfaction.

A Path to New Manufacturing IRII’s $4.6 million project to introduce high-end manufacturing in Haiti is sponsored by an investment group that includes a Haitian textile executive, a U.S. finance sector executive. It is headed by a Canadian fashion industry executive and founder of a foundation operating in Haiti.

If the project is successful to retrofit an existing factory and train workers to make valuable apparel for export to the United States, it will be scaled up. IRII’s sponsors will then seek to finance the construction of an all-new, LEED-certified clothing manufacturing plant in Haiti.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Manduvira: Supporting Paraguay’s Organic Sugar Producers

Boosting Profits for Paraguay’s Organic Sugar Producers As global consumption of organic food—including organic sugar—has risen, so have prices and demand.

Yet small Paraguayan producers in one of the world’s main organic sugar production centers lack the capital to invest in infrastructure and training that would allow them to produce more and increase their earnings.

The Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ) is providing an up to US$3 million loan to Cooperativa de Producción Agroindustrial Manduriva Limitada (CM) to help them build their own organic sugar processing plant.

CM is the only cooperative in Latin America producing organic sugar with fair trade certification, yet its associated members are only just one link in the organic sugar market’s value chain. With their own processing plant, CM’s approximately 1,700 members will not only grow sugar cane, but they will manufacture organic sugar, value added products, and contribute to the sugar value chain from field through production to sale of processed sugar. They will manage processing, manufacturing and commercial relations, set their own prices and raise their profits.

One Solution for Higher Productivity and Profits Paraguay is positioning itself as one of the largest exporters of organic sugar. And CM has more than 15 years of experience growing this product, which it now exports to more than 17 countries in Europe, North America and Asia.

CM’s sales have been increasing steadily over the last few years. Yet, financial markets in Paraguay do not offer financing on terms that will allow CM to consolidate their small-scale agricultural model to meet rising demand for their sugar.

Currently, CM producers must transport their sugarcane for processing a considerable distance to a rented plant with limited capacity. This erodes the profit margins of small producers who subsist at the base of the socio-economic pyramid.

With its own plant—partially financed by OMJ’s loan— CM will no longer be limited by or dependent on a rented processing plant. The new plant, equipped with state of the art technology, will allow CM to boost sugar production, double output and sales, and raise the incomes of its associated producers. They will also be able to process, market and sell molasses, a by-product of sugar manufacturing, which is not available at the rented plant.

A Model for Many Countries and Crops With the new plant, the project will benefit 1,700 small producers and their families, reduce environmental pressure on the land, providing a steady source of income for these farmers. The project will help to sustain communities that remain rooted close to their agricultural land, thereby reducing the need for their need to look for better opportunities outside their ancestral homes.

Additionally, activities at the plant are expected to create new and sustainable jobs for more than 800 families who harvest, process and transport organic sugar and its products and help to operate and manage the plant.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Empowering Uruguay’s Small Store Owners to Grow Leveraging Wholesale Networks and Information

will offer tailored lines of credit so each shopkeeper can buy goods on credit from a combination of distributors.

Corner stores in Uruguay’s suburbs and outlying areas are crucial cornerstones of their neighborhoods, selling everything from tomatoes to toothpaste. But no matter how loyal their customers, small shop owners cannot grow their businesses without access to credit.

Point of Sale units set up in wholesalers’ trucks allow shopkeepers to swipe their Microfin card to pay for products. Credit allows shopkeepers to increase their inventory while lowering prices and increasing profits, since Microfin’s interest rates are lower than those usually available to informal borrowers.

With support from the Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ), Microfinanzas del Uruguay S.A. offers small entrepreneurs an innovative way to leverage their relationships with distributors so they can obtain the credit they need to expand their inventory and enter the formal banking system without leaving their store.

Over time, small shopkeepers will build a credit history with Microfin and become eligible for their other micro-products, like insurance.

OMJ is a providing a partial credit guarantee of up to 51.4 million Uruguyan pesos to Microfinanzas S.A. for the Mayorista program that uses shopkeepers’ payment records with distributors to offer them a line of credit. OMJ pioneered leveraging distribution platforms to reach the unbanked at the base of the pyramid; Mayorista builds on that success.

Mobile Credit for Small Shopkeepers It is expensive and time consuming for financial institutions to offer credit to small business owners in Uruguay and elsewhere in Latin America as they often have no credit history, no way of establishing one and live far from banks. What’s more, Uruguay’s market for microfinance is small and constrained by regulation.

Wholesale distributors have the information microfinanciers like Microfin need to offer credit. Distributors regularly deliver goods to thousands of neighborhood shops around Uruguay and keep records of how much shopkeepers order and whether they pay on time.

By partnering with seven different wholesalers, Microfin can affordably assess the credit-worthiness of hard to reach small entrepreneurs. Through their Mayorista program, Microfin

With technical assistance, Microfin is developing an innovative financial education program for its small creditors. Text messages sent to cell phones will teach store owners about financing while building their trust in the banking system and helping them avoid taking on too much debt.

Expansion of a Pioneering Model OMJ pioneered the transformation of distribution platforms and business relationships into opportunities for the majority who are mostly outside the banking system. OMJ’s model combines innovation and practicality to increase the reach of lenders and reduce their costs while bringing banking directly to micro-entrepreneurs. Using this model and with OMJ’s financial support, these programs are successfully offering credit to unbanked food vendors in Brazil and lending to thousands of neighborhood shopkeepers in Mexico.

The Mayorista program is OMJ’s third successful use of this model. The Uruguay branch of Citibank N.A. is giving a loan in local currency to Microfin to expand this program. The partial credit guarantee OMJ provides Microfin covers all of Citibank’s credit risk exposure to the microfinance institution.

OMJ’s support frees Microfin to scale up while offsetting constraints set by Uruguay’s caps on microfinance interest rates, and it will catalyze Microfin’s access to financing from other local lenders in the future.

Mayorista is expected to offer credit to 25,000 microentrepreneurs across Uruguay.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Developing Anchor Companies, Boosting Small Producers.

Competitive Producers for Competitive Companies Credit is the boost small and medium enterprises in Latin America need most. It gives companies that anchor distribution chains the opportunity to integrate small producers into the formal economy. This creates jobs, strengthens domestic markets and improves access to exports, while increasing productivity and bettering the lives of poor producers at the base of the pyramid.

The Inter-American Development Bank’s (IDB) Opportunity for the Majority Initiative (OMJ) is lending up to $3 million to the Fondo de Desarrollo de Emprendimientos Socialmente Responsables (PymeCapital S.A,) to bolster small and medium anchor companies in agriculture, agroindustry, manufacturing, and tourism in nine countries in Central and South America.

Through the OMJ loan, PymeCapital will provide credit and technical assistance to SMEs and small producers in Bolivia, Nicaragua, Guatemala, Honduras, Dominican Republic, Peru, Paraguay, El Salvador, and Colombia. The fund lends to companies whose business models incorporate social and environmental impact, and is thus developing a portfolio with a triple bottom line.

Training Competitive Small Producers Agriculture and manufacturing are two of the most important sources of employment in Latin America and the Caribbean.

Yet many workers in these sectors have low productivity and are poor. They can’t obtain capital and many have few organizational and administrative skills. Since the majority of small producers live in rural areas, they are often hampered by geography, cut off from formal markets and exports by a lack of infrastructure and information.

SMEs also need to be more competitive and productive, and increasing the capacity and sustainability of their small producers

helps them do so. PymeCapital has developed a win-win model for SMEs with expansion plans that have a social vision, and producers that need a stable anchor within a distribution chain.

Thanks to OMJ, the fund will offer SMEs access to mediumterm financing and technical assistance to maximize their competitive advantage, expand integration and strengthen their linkage with more small producers along the value chain.

All of the businesses in the fund’s portfolio are linked to a base of small producers. Businesses must have operated in their market for at least three years, have an expansion project with a social impact vision and be an important part of their production chain.

Stronger Businesses, Better Producers The fund offers companies to which it lends two kinds of technical assistance: production and management. Support for improved management, corporate governance and formalization develops and strengthens businesses. Support for small producers strengthens them and businesses, since companies in the portfolio buy raw materials, supplies and other inputs from producers at the base of the pyramid.

Technical assistance is provided with the aim of improving productivity and irrigation and assisting small producers to qualify and apply for organic certification. These are among many services offered through specialized institutions with which the fund has cooperation agreements.

A Model for Many Sectors PymeCapital specializes in providing credit, technical assistance, consulting services and aid to SMEs in Latin America, particularly those requiring structured mechanisms in their business development. As OMJ’s loan supports a regional project, the fund uses its partners in individual countries to originate, execute, and monitor the portfolio within a standardized framework. The project is expected to raise incomes of several thousand low-income small producers at the base of the pyramid. As several sectors are involved, the project expects to have a positive demonstration effect. It can be replicated and scaled through other venture capital funds and financial institutions and support SMEs in these and a variety of different sectors across the region.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Affordable Homes and Mortgages for Nicaraguans Rent to Own Low-income and self-employed Nicaraguans face two serious obstacles when looking to buy a home: a shortage of affordable housing, and difficulty in obtaining a mortgage.

An innovative model is bringing both homeownership and financing within reach of Nicaraguans at the base of the pyramid. The Rent-to-Own Housing Program allows prospective buyers to rent the newly built housing unit they’d like to buy, and to use their track record of monthly rent payments to build a formal credit history and qualify for a mortgage.

The Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ) is offering a senior secured loan for up to $5 million to Banco de Finanzas S.A (BDF) Nicaragua to support the pilot rental and mortgage loan program. If successful, IDB will lend another $5 million to scale up the model.

One Solution for Two Problems Three quarters of low-income Nicaraguans are self-employed or work outside the formal economy. A majority—more than in most Latin American countries—either has no access to banking services or does not use them. They have no formal credit history and no collateral to qualify for a mortgage.

Yet, formal housing solutions-—where buyers obtain legal title to their home and access to power, safe drinking water and sewage—are almost always financed by commercial banks.

With little prospect of homeownership, most low-income Nicaraguan families live either in substandard or overcrowded housing, or pay high rents. Most low-income housing is informal, built by families, often without adherence to building codes, access to public utilities, or title to land.

BDF’s Rental Program changes that. The bank, the fourth largest in Nicaragua, will buy from property developers housing stock valued at $20,000 and under, which it will rent to lowincome families interested in buying. The program will qualify participants by checking income, references and other sources.

It will use their rental payment history over two years to help qualify them for a mortgage at market-based interest rates.

Saving on Rent BDF’s Rental Program removes a big hurdle for for low-income families—the down payment—by lowering the amount of the initial up front cash payment, and by setting up a way for families to afford the lump sum.

Program participants open a savings account with BDF. Every month, a small portion of their rent payment is set aside towards the down payment and accumulates over two years. The monthly payments also include a sum for liability and life insurance.

BDF’s mortgage unit will operate the Rental Program in tandem with RAFCASA, a related private financial services company with a niche business providing financial solutions for lower income and unbanked populations in Nicaragua.

With a friendly image and an accessible door-to-door sales force, RAFCASA plays a key role in reaching would be homeowners, explaining the model and assuring the smooth operation of the program. As well as qualifying program beneficiaries and negotiating with developers to build housing, RAFCASA’s officers visit beneficiaries every month to check on compliance and satisfaction. They provide training in financial literacy, and assist with applying for a mortgage.

More Demand, More Supply IDB’s support makes possible the implementation of this innovative business model in Nicaragua. If the pilot generates an increase in demand for low-income housing, it’s expected that more Nicaraguan real estate developers will enter this market and increase supply while reducing costs to benefit consumers. Once proven, the model could be expanded to bring affordable housing to others in Nicaragua and beyond to low-income and informally employed aspiring homeowners in other Latin American countries.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Boosting Community Banking and Farming in Paraguay Financing a Farmer-owned, Farmer-focused Bank Small and medium-scale farmers and agricultural producers are Paraguay’s economic powerhouse, but their business growth has been constrained by lack of access to capital. Paraguay’s first cooperatively owned bank is designed and funded to boost these producers at the base of the economic pyramid through long-term financing.

The Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ) is lending up to US $6 million to Banco para la Comercializacion y la Produccion S.A. (BANCOP) to expand its agricultural and intermediate lending program. OMJ support fills an important need in Paraguay’s financial market and works to remove obstacles for producers.

Platforms for Long-term Financing Small farmers and producers in Paraguay mostly form cooperatives and communities to pool their efforts and cultivate more land, raise more livestock or process more food, and to improve their bargaining power in the marketplace. Increasing international demand for agricultural commodities is a great opportunity for producers to increase exports and earnings.

Small-scale producers need financing to grow. They mostly obtain credit through their cooperatives, but those rely on member contributions and savings, and offer limited financial support. Producer cooperatives are also part of the Paraguayan financial system, which offers very short-term credit—up to a few months. So they are unable to provide longer-term financing.

BANCOP’s innovation builds on existing platforms— producer associations and cooperatives—and solidifies them to form Paraguay’s first cooperatively owned bank promoting the development and sustainability of small-scale producers.

With support from OMJ’s long-term financing, BANCOP will offer financing tailored to small-scale producers’ business models, their needs for working capital and investment for agriculture, livestock and service industries.

Developing Clients and Ownership Regulated similarly to other local banks in Paraguay, BANCOP is a banking cooperative formed by agricultural associations or cooperatives. The 27 cooperatives that are the bank’s shareholders are also its clients.

BANCOP aims to operate in communities without traditional banks, thereby increasing financial inclusion and promoting economic development in rural areas. As producers grow their businesses, they employ more people locally, rooting the community and avoiding migration, especially of younger workers.

The bank’s creation was spearheaded by the main producer cooperatives’ association, Federacion de Cooperativas de Produccion, FECOPROD. FECOPROD acts as agricultural extension agent, funding and managing training for small-scale producers to improve crop management and production techniques. It will support BANCOP’s members to improve business management, accounting and administrative skills.

To strengthen BANCOP and support development of financial products like individual micro-loans and microinsurance, the IDB’s Multilateral Investment Fund is developing a technical assistance program.

BANCOP’s portfolio will be diversified among different crops, dairy and meat, and in geographical areas.

A Regional Model for Small Farmers BANCOP has the potential to be a great example for Paraguay’s financial sector as well as for banks and farmers across the region. More than a third of the economically active population—1.2 million Paraguayan—are members of a cooperative. Following BANCOP’s example, many cooperatives could start their own banks.

Other countries in Latin America have many cooperatives made up of small producers, so there are many opportunities for the project to be replicated and scaled up.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Building a Culture of Higher Education for Mexico’s Low-Income Families Expanding a Successful College Loan Program Aspiring college graduates from low-income Mexican families have seized the chance to fund their studies through the education financing company FINAE. Founded in 2006, the company has expanded its student loan offerings over the past two years with essential support from the Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ).

To build on that success and bring college degrees from recognized private institutions within reach of more young Mexicans at the base of the pyramid (BoP), OMJ is renewing its support to FINAE by providing a Partial Credit Guarantee of up to USD $7 million to guarantee the issuance of the financial institution’s first private education bond on the Mexican capital market. OMJ is also providing FINAE a line of credit of up to USD $3 million so it can continue to expand its student loan portfolio.

Increasing Access to Higher Education Almost a third of Mexicans between the ages of 19 and 24 were enrolled in university in 2010, but the vast majority of those students came from the top of the socio-economic pyramid. Those at the base of the pyramid—who account for more than half of the population aged 19-24—only made up 3.4 % of the student population.

Youth from low-income families are eager to learn: it is the shortage of space in public universities and lack of financing for private universities that pose the biggest barriers.

Applications for Mexico’s public universities far outnumber available spaces, in some cases by five to one. Likewise, the tuition at recognized private institutions is too expensive for low-income families that up to now have not had a suitable option for long-term higher education financing.

FINAE fills a much-needed gap in the education financing market in Mexico, providing loans to deserving students that are looking to pursue degrees at well-known private institutions, in fields that are in strong demand in the labor market. FINAE’s student loans have benefited more than 3,800 students. More than two thirds of these students are the first members of their family to pursue higher education, and more than a quarter of FINAE’s loan recipients have parents who did not even finish primary school.

More Graduates Looking at Brighter Futures By expanding its student loan portfolio, FINAE expects to provide 40,000 more Mexican students the chance to obtain degrees from recognized private institutions and increase their earning potential. Higher education is proven to be one of the most powerful tools for reducing poverty and inequality and is high on the agenda of many countries in Latin America and the Caribbean.

FINAE’s student loans finance between 20% and 100% of the total cost of a university degree. Moreover, as students repay their FINAE loans, they also establish formal credit histories that will allow them to access financial services.

A First for Private Investment OMJ’s USD$ 2 million loan provided in 2010 was critical in FINAE’s ability to build a portfolio of loans for low-income students and to break even in 2012. OMJ’s renewed support in 2012 allows FINAE to expand further and securitize its portfolio. FINAE will be the first private institution in Mexico—and one of the few in Latin America—to attract private investors to the education sector and allow them to provide direct support to students of limited means.

Furthermore, FINAE’s expanded education loan program has the potential to be scaled up and replicated in other countries in the region, notably in Central America, where higher education financing remains scarce.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012

Nicaraguan Families Build Better Homes And Communities Lending for Basic Infrastructure and Home Improvement Large numbers of Nicaraguans have moved to urban areas over the past thirty years, building rough houses in spontaneous neighborhoods that lack roads, water, sanitation and energy. Nicaragua’s Foundation for the Promotion of Local Development (PRODEL) structures innovative public-private partnerships and loans so poor communities can build vital infrastructure. And so low-income families can build or adapt homes and connect to new utilities, PRODEL lends to credit unions, microfinance institutions and companies where the poor bank.

With a $5 million loan from the Inter-American Development Bank’s Opportunities for the Majority Initiative (OMJ), PRODEL will increase financing for communities and families at the base of the pyramid. It will also expand lending to municipalities in northern, central and western Nicaragua.

infrastructure, and plan to fit their project in the municipality’s overall development. Families in these communities earn three to five times the minimum wage and must contribute financially and in kind.

Half of the program’s funds are dedicated to communities, half to incremental home improvement. PRODEL gives credit to fix homes in affordable installments so low-income Nicaraguans can build floors and roofs, and install water pipes, bathrooms and wiring to hook up to newly built water, sewer and electricity systems. PRODEL channels money to institutions offering micro-credit.

A Broad Impact Basic infrastructure and better homes have a far-reaching effect on communities. Residents are healthier and safer; their children study better. People who invest in their communities feel more ownership and self-esteem. Improved surroundings immediately and substantially increase assets. Once legally part of a municipality, a home can be used for loan collateral.

Platforms for Successful Partnerships Local Investment in Local Priorities Financing and know-how for small infrastructure projects is difficult for informal settlers to obtain. As a result, families use their own savings and supplies to gradually improve their homes and surroundings.

PRODEL’s Local Community Development Program boosts infrastructure projects by lending for new works and renovation of community centers and schools. Its breakthrough, sustainable model forges public-private partnerships between communities and municipalities where they have settled. It offers loans with payments tailored to projects and based on municipalities’ and families’ incomes.

It offers technical support for modern construction methods.

The financing model depends on communities willing to organize, vote for affordable and urgently needed

The overall project consisting of OMJ’s five-year loan, PRODEL’s $7 million and $2 million from other sources will help PRODEL identify municipalities suitable for infrastructure loans, promote and explain the model. It will also support PRODEL’s efforts in establishing public-private partnerships between municipalities and communities and offer construction expertise and training, thereby building the capacity of the local public sector.

Lastly, PRODEL will systematize its Local Community Development Project to make it easier to disseminate, publicize and scale up across Nicaragua. The OMJ loan allows PRODEL to improve the homes and lives of 12,000 families in 50 communities in 20 municipalities.

PRODEL’s sustainable business model can be replicated through similar organizations in similar communities at the base of the pyramid across Latin America and the Caribbean.

For more information about the program, contact: OM-IDB@iadb.org Follow us @MajorityMarkets

Portfolio 2012