Risk capital is a good option for financial development

(Special, April 3, 2006).- In recognition of the CAF record in risk capital, CAF president & CEO Enrique García was invited as opening speaker to the fourth seminar of the Latin American Venture Capital Association (LAVCA). The theme of the seminar was “Venture Capital and Private Equity in Latin America: Defining a Competitive Advantage”. The event was held in the city of Belo Horizonte, Brazil last Saturday April 1, as a prelude to the IBD Annual Meeting.

In his opening remarks, García said that risk capital contributed to quality economic development by stimulating efficient companies that act in innovative sectors with positive externalities for economic growth, and creating incentives for private sector investment by finding finance for high risk and high return activities that cannot normally be financed in the traditional sector. Risk capital also promotes equity by investing in sectors - such as agroindustry - where adoption of new techniques and new forms of value added increases productivity, and contributes to the development of capital markets because the success of the undertakings gives them access to new types of financing such as debt issues, or to financing from institutional investors such as Pension Fund Managers (AFPs).

The CEO added that CAF’s experience in risk capital dates back to the mid-1990s when it began to invest in investment funds to support the development of various sectors (energy, infrastructure, growing companies, financial and capital markets, etc) in Latin American countries. In 2002 CAF increased its support for this type of financing by creating the Business Development Investment Fund, FIDE, which is a venture capital fund for development of SMEs in its member countries. With an initial commitment of US$15 million from the Corporation, FIDE has so far approved 40 operations for about US$13.1 million, and is structuring a further six operations for US$5.9 million.

In these 10 years of CAF risk capital activity, the results have been positive. Now based on its experience the Corporation is planning to deepen its future operations by making "intelligent" capital investments (mix of financial resources plus technical capacity), promoting a catalytic role in attracting additional resources by channeling contributions from other multilaterals, private banks, investors, national and local governments etc, at the same time as seeking new allies and designing innovative financing solutions that respond to business needs.