![CAF expands partnership with Brazil’s regional development banks CAF expands partnership with Brazil’s regional development banks](/media/3042604/jonathan-borba-vjp6kqyg1eu-unsplash.jpg)
CAF expands partnership with Brazil’s regional development banks
With this new approach, the organization hopes to reach small and medium-sized entrepreneurs and improve the country’s competitiveness.
Covid-19 resulted in thousands of micro and small entrepreneurs facing a unique crisis in the survival of their businesses. Given the lack of opportunities to raise emergency funds from banks, many found themselves with few options to continue doing business.
Fabiana Araújo, a partner at Enfoque Soluções Empresariais, an accounting firm, faced new challenges overnight in mid-2020. Since she had to send her whole team to work from home, she needed resources to buy equipment. When searching for commercial banks, she found prohibitive rates and terms for viable loans. It was then that she learned about the BDMG (Minas Gerais Development Bank) program and raised the amount needed for her businesses to survive during the pandemic.
Fabiana is one of the beneficiaries of a type of operation from CAF-development bank of Latin America-, which has been gaining strength in recent years: lines of credit for regional development banks.
One of CAF's action principles is searching for improvements in competitiveness within countries. This is one of the important ways of achieving the institution’s main goal, which is to improve citizen’s lives in its member states.
To achieve this objective in the case of Brazil, CAF works directly with regional development banks as one of its strategies, which in turn are able to reach the country’s micro and small entrepreneurs.
“It is an interesting and very feasible way of reaching the final beneficiaries in Brazil, since the regional development banks have excellent tools and structure to serve this public,” says Jaime Holguín, CAF’s representative in the country.
Between 2015 and 2020, the multilateral business consolidated with regional development institutions and currently serves 5 institutions with credit lines amounting to USD 340 million.
The financial design of the credit granted to these institutions allows each bank to periodically access the amount necessary to finance its customers.
Unlike traditional credit, the line of credit for regional development banks functions in a revolving fashion, which can be accessed and once repaid, may be reused," explains Holguín. According to him, this lends greater flexibility to the service of small entrepreneurs, since all the necessary institutional and financial analysis would take too long in individual loan operations, thus leaving thousands of people without assistance.
Financial innovation
In order to serve the regional development banks with the required flexibility and quality, CAF complied with a series of internal measures that would allow the use of credit lines at a convenient time and with viable interest rates and foreign exchange risks. For example, to make operations viable for smaller development institutions, an innovative debt management mechanism was created.
CAF obtains derivatives for this purpose, which cover the exchange and interest rate risks for each disbursement to be made to the regional banks. That way, each bank would avoid being subject to currency fluctuations and interest, ensuring greater predictability for both banks and end users.CAF's more recent content
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