Improsa

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26049
Company name	Grupo Financiero Improsa
Country	Costa Rica
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pending Approval

Date SPI disclosed	August 29, 2007
Projected board date	October 1, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

IFC is considering providing Grupo Financiero Improsa (GFI, the company or Improsa) an equity investment up to $17 million in common shares equivalent for up to a maximum of 20% of the company’s capital base. The equity investment will be to acquire existing and subscribe new common shares in GFI. The new common share subscription will support GFI’s SME market expansion. IFC is also considering an MSME loan of up to $20 million to finance SME loan in Costa Rica and other Central American countries.

Project sponsor and major shareholders of project company

GFI is majority owned by the Ortuño family (the Family) who collectively holds a 51.8% stake. The Family started in the late 1800’s as coffee producers and in 1872 founded Banco de la Union, which financed agricultural activities, such as coffee production. The Family exited the banking business when in 1949 Banco de la Union was nationalized.

In 1986 the Family founded Financiera Improsa, a finance company, to finance the import/export needs of Costa Rican companies. In 1995 the Family obtained a banking license and established Banco Improsa (stock listed in 1997). In 2000 the Family established GFI as a financial holding to group all of its financial services under one umbrella and to have better information transparency through the publication of the company’s consolidated financial statements. The Family also continued in coffee production and other related businesses, namely sea transportation services.

Probanco L.P. or the Central American Banking Growth Fund (the Fund) was established in 2002 as a specialized investment vehicle targeting the financial sector in Central America. The Fund's founding investors are Darby Overseas Investments, Ltd., an emerging markets investment firm controlled by Franklin Templeton Investments, one of the largest global investment management organizations, the Netherlands Development Finance Company (FMO), the Central American Bank for Economic Integration (CABEI) and IDB, through the Corporación Interamericana de Inversiones (CII). The Fund holds 17.91% of GFI’s total outstanding common shares

The BOD members are qualified and experienced bankers and business men with a proven track-record. There is a unique board for GFI and all of its seven subsidiaries. GFI board meets three times during the month. One of the meetings is to discuss Banco Improsa (the bank operation) and corporate affairs. The second meeting is to have an in-depth coverage of two (out of six) other subsidiaries. And the last monthly meeting covers strategies matters.

Total project cost and amount and nature of IFC's investment

Through this project, IFC is expected to work with GFI to significantly increase its existing SME loan in the medium-term in Costa Rica and other Central-American countries, including frontier countries, such as Honduras and Nicaragua.

Location of project and description of site

Grupo Improsa is headquartered in San Jose de Costa Rica with 6 full branches located in San Jose. Investments will be made mostly in Costa Rica.

Anticipated development impact of the project

This project is expected to have a high developmental for the following reasons:

- Significant Contribution to Private Sector Development by supporting a Central American independent financial group in their local and regional expansion strategy;
- Scaling up SME Lending as this project involves scaling up a local specialized SME bank into a regional player by supporting it with equity and debt funding and allowing it to expand and diversify its funding sources;
- Contribution to Poverty Reduction and this project will support productive SMEs and employment generation across Central America.

The SME sector, an underserved segment by traditional banks, plays a crucial role in achieving and maintaining economic growth and therefore key to the health of the economy.

IFC’s role in this project is three-fold namely:

- support the stability and deepening of the Costa Rican financial sector by providing financing to a leading niche player with local and regional expansion plans in the SME segment;
- promote SME credit products through the formal banking system (through leasing and other asset-backed structures) thereby allowing these SMEs to benefit from increased economic activity due to CAFTA;
- support the company’s strategy of increasing its transparency and corporate governance through an active shareholder participation by IFC.

IFC's expected development contribution

IFC will be providing scarce equity capital and the support to the company’s regional expansion plans, which are critical to the GFI’s sustainability amid the threat of new international players.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. During appraisal, IFC analyzed the FI portfolio and the activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determined the Applicable Performance Requirements based on an analysis of the potential Social and Environmental risks associated with the FI portfolio and considering IFC’s investment. The Applicable Performance Requirements are: The IFC FI Exclusion List and The applicable National Social and Environmental Laws and regulations. The project will be required to:

- Develop an, or upgrade, if necessary, any existing Social & Environmental Management System (SEMS), prior to disbursement to the satisfaction of IFC;
- Identify responsible, qualified persons to manage and implement the SEMS;
- Commit to implement the SEMS, to ensure that its investments/activities supported by IFC financing are in compliance with the Applicable Performance Requirements;
- Submit a periodic report to IFC as per a format to be provided by IFC.

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