IFC is at the forefront of domestic capital market development in large part because of its commitment to providing structured finance solutions that better meet the needs of its clients in developing countries. Such transactions can provide a new way to reach entrepreneurs in segments traditionally excluded from the formal economy, including women, indigenous groups, and people in rural areas.
Mexico's Financiera Compartamos Is a Key Example
In fiscal 2005, IFC invested about $15 million in Financiera Compartamos; this was our first ever structured bond from a microfinance institution in Mexico. The proceeds of the transaction are being used to fund some 400,000 Mexican small businesses, of which more than 99 percent are owned by women in rural areas.
A large segment of Mexico's population is self-employed, and Compartamos, a nondeposit-taking company, works with women microentrepreneurs who, in many cases, are the main source of income for their families.
Compartamos provides microloans through three products: village banking, solidarity group loans, and individual loans. Loans provide working capital for the company's clients to build small businesses.
One Success Story
Emma Acosta Salazar is a manufacturer of straw hats. She started her business because she needed a fixed job, and so that her husband would not have to emigrate to the United States. Emma began by buying a machine and subcontracting to people who bought hats. As she made money, she bought more machines. She has been with Compartamos for two years, and has used her loans to purchase material and close good business deals. Emma is teaching the trade to her children while making a way for them to continue their studies, and one day go to college. Visit Compartamos' site for more stories...
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Compartamos Named "Best Structured Bond" of the Year
With IFC's help, Compartamos closed a bond transaction that greatly improved its access to long-term local currency financing from institutional investors. The company issued a five-year, Mexican peso bond equivalent to $15 million. The issue was partially guaranteed by IFC for 34 percent of the outstanding principal amount. This guarantee helped the bond issue achieve high ratings from both Standard & Poor's and Fitch. The transaction was named the
Best Structured Bond of the year by
Latin Finance.
Following the success of its first tranche, Compartamos issued its second tranche in September 2005—completing its targeted $43.4 million equivalent bond issuance program.
This was the second time IFC had supported the company. In 2001, IFC provided financing and equity to help Compartamos develop from a nongovernmental organization to a commercially viable entity, helping it expand its services and its access to market-based funding. As the largest international provider of funding for microfinance, IFC is committed to helping successful companies like Compartamos achieve their growth plans.
Today, the company has a growing network of more than 142 branches in 26 states of Mexico and its growth plans include an expansion of its customer base to 1 million clients by 2008.
"This instrument provided an alternative for local
institutional investors to diversify their holdings in terms
of both asset class and underlying credit. IFC has been
actively offering local currency partial credit guarantees
in the region. This innovative product not only helps
attract local financing, but also helps to develop
domestic capital markets."
- Lee Meddin, IFC's Deputy Treasurer
for Structured Finance
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A Commitment to Structured Finance
IFC continues to develop and execute structured finance solutions for clients. These tools are part of IFC's broader strategy to build domestic capital markets; to provide clients with new forms of cost-effective financing, with an emphasis on long-term local currency funding; and to increase investment capacity in strategic asset classes, including loans to small businesses, mortgages, and trade finance.
In fiscal 2005, IFC invested $218 million and mobilized a further
$1.1 billion through 13 structured finance transactions. Since 2001, IFC has participated in a number of innovative deals widely recognized in the financial industry, including:
- The first securitization of nonperforming loans in Latin America
- The first cross-border securitization of residential mortgages in Central and Eastern Europe, in Latvia
- The first direct risk-shaking facility in the education sector, in Ghana
- The first domestic partial credit guarantee in the agribusiness sector, in Peru
- The first multidonor-funded risk sharing facility for microfinance institutions in Southeast Europe
- The first IFC investment to a municipality in Guatemala
For more information contact:
Adriana Gomez
Communications Officer
Washington, DC
E-mail:
AGomez@ifc.org
