US$60 million loan granted for Venezuelan economic recovery

(Caracas, December 21, 2000).- CAF is contributing to the recovery of the Venezuelan economy and to higher employment by backing the small- and medium-sized enterprises (SMEs) sector, in line with the country's reindustrialization plan which the government has set in motion. CAF President & CEO Enrique García and Minister of Finance José Rojas today signed in CAF headquarters a US$60 million loan agreement which will provide financial support to SMEs through the Industrial Credit Fund (FONCREI).

The CAF president said at the signing, "small- and medium-sized enterprises are a priority for the Venezuelan government and for the Corporation, because this is a crucial area for economic recovery. In Venezuela SMEs employ 55% of the working population and generate 77% of jobs in the private sector, so all the support given is fundamental." He added that the operation was part of the institution’s strategy to provide long-term finance for this sector as part of the economic development of the region.

The operation signed today in the Corporation was requested by Venezuelan President Hugo Chávez and Finance Minister José Rojas. It consists of a loan granted by the institution for US$60 million at eight years including two years of grace. The amount includes 2% for the institutional strengthening of FONCREI, the executing agency. Some other important aspects in the program are:

• review and improve the credit delivery and recovery systems of FONCREI;
• expand coverage of the SMEs which receive FONCRI funds through financial intermediaries.
• adapt the FONCREI organization to irrigate more funds into the SME sector with lower transaction costs and a financial cost in line with their risk.
• Support FONCREI with adoption of policies aimed at operating more as a financially viable wholesale financial intermediary, and not as a simple fund manager.

Finally, the strengthening process will improve and develop the capacity of FONCREI to grant technical assistance to the SMEs. This aspect is vitally important because the Venezuelan financial system not only requires customers backed by acceptable guarantees, but also with the capacity and potential for growth to guarantee their competitiveness and sustainability, and therefore become better borrowers.

For CAF and for the Ministry of Finance, FONCREI, attached to the Ministry, is the best prepared institution for providing financial support to SMEs. It also acts as a wholesale bank by lending long-term funds (15 years) to private financial institutions which then pass them on to SMEs. Since 1998 the institution has been implementing the ISO 9000 international quality standards, and the institutional strengthening program included in the loan granted today takes into account this administrative and management structure, as well as the improved capacity to offer technical assistance to the SMEs.