IDB grants and loans: What you need to know

If you think the Inter-American Development Bank only assists governments, think again. The bank routinely lends to small businesses and civil society organizations. If you have a viable development plan and need a financial partner, you may want to consider IDB. The bank provides more financing to Latin America and the Caribbean than any other government-owned regional financial institution, with more than $10 billion in loans and grants provided in the past 12 months. How to approach IDB It is important when seeking financing to pay close attention to lending requirements, according to an IDB official. “There may be some similarities or targeting of the same partners [between various IDB departments], but the fact is that projects have to meet certain specific requirements in order for them to provide financing,” said IDB press officer Peter Bate. Application processing times vary between projects. Veteran contractors explained there is a great deal to gain from becoming familiar with bank officials. Their advice: Attend events, join the frequent brown bag luncheons, and take every opportunity to present in front of bank officials, whether at a conference or seminar. “They [IDB] don’t like outsiders - that’s not their approach to work with outsiders,” one development executive explained on condition of anonymity. One strategy for consultants would involve volunteering to work for free on several projects in order to gain a level of familiarity with the bank’s staff. “It’s a very slow process getting in that door,” said one executive recruited by the bank. “They have to really know you and really trust you. They have to see what you have done outside of the bank before they can feel comfortable going with you.” The executive added: “You have to work with partners of the bank, show that in your corporate capabilities you have worked with institutions the bank has worked with and market that to them. But it takes time. Most importantly, it’s being associated with institution they know well.” Funding eligibility Eligibility for receiving funds varies, depending on the type of project and financing instrument. But the project must benefit citizens of Latin America and the Caribbean. Another constant for lending is what the bank terms as “government non-objection.” In other words, the administration in the country where the project will take place must not oppose the undertaking. IDB generally divides lending between the public and private sectors, with public entities requiring sovereign government guarantees. Among the private undertakings that may be eligible to become IDB borrowers are corporations, other commercial companies, cooperatives, foundations, and the like. Loans and guarantees may be made directly to private businesses without government guarantees, typically for the infrastructure sector (energy, transportation, sanitation, or communications), capital market development projects, and export financing. If your organization is eligible, there are multiple avenues to pursue IDB financing. For those in the private sector, IDB Group loans, credits and grants offer four windows of opportunity, via the Multilateral Investment Fund, Inter-American Investment Corp., Opportunities for the Majority Initiative, and Structured and Corporate Finance Department. For small businesses: The Multilateral Investment Fund For small businesses seeking financing, chances are they will deal with the bank’s Multilateral Investment Fund. MIF is the leading source of technical assistance grants for micro- and small business development in Latin America and the Caribbean. MIF investment resources typically fund private financial institutions such as banks, cooperatives, microfinance institutions, or nonprofits, which can then lend the resources to micro- and small businesses region-wide. Grants range from less than $100,000 - for small projects designed and administered by certain IDB/MIF country offices - to $2 million. Average MIF grants amount to $1.5 million. MIF does not finance social projects or those related to health or education. In addition, it does not finance physical infrastructure projects. Proposals for MIF funding can be submitted year-round and can either be sent or delivered to the MIF specialist in the IDB/MIF office in the country where the project would take place. One option within MIF is the Social Entrepreneurship Program. SEP offers financing and/or technical cooperation that directly benefit poor groups, especially rural businesses, that lack access to financial, business development and other support services needed for them to earn a better living. The reimbursable loan component can be up to $1 million. But the average loan size is approximately $500,000. Small projects that are not large enough to qualify for MIF or SEP financing will find it difficult to secure direct IDB assistance. Small-scale lending is not IDB’s forte. “Our ability to do very small projects is limited because they take time to develop and their cost might be too low to justify the involvement of our specialists,” one IDB officer said. For the ‘bottom of the pyramid’: The Opportunities for the Majority Initiative The Opportunities for the Majority Initiative promotes and finances private sector business models that develop products and services, create employment, and enable low-income producers and consumers to participate in the formal economy. Insiders described OMI as a unique niche for projects designed to impact the “bottom of the pyramid.” Average project financing range from $5 million to $10 million. The funds are usually accompanied by nonreimbursable technical assistance agreements aimed at, among other purposes, strengthening the project’s structure and community’s capacity to implement it. The process can be initiated by sending a project proposal and contact details via e-mail to OM officer Luiz Ros, who will provide further assistance. For SMEs etc.: The Inter-American Investment Corp. The Inter-American Investment Corp.’s mandate is to promote economic development in its Latin American and Caribbean member countries by financing private enterprise, preferably small and medium in scale. IIC seeks companies that do not have access to medium- or long-term financing from the capital and financial markets, and can be thought of as a resource in between the large-scale operations of SCF and the small-scale undertakings of MIF and OM. The target market comprises companies with sales ranging from $5 million to $35 million. In order to obtain financing from IIC, a company must be a profitable venture with growth potential requiring medium- or long-term capitalization funding. For large entities: The Structured and Corporate Finance Department The Structured and Corporate Finance Department provides financing to large companies, large banks, and public and mixed capital entities. Projects must have high development impact on economies and be sponsored by corporations with annual sales exceeding $100 million. Banks engaged in projects with SCF must have more than $500 million in assets. Joint public-private ventures should contact IDB’s Office of Outreach and Partnerships. ORP was created to facilitate the interface of potential development partners with the IDB Group.