IFC Brings DPR Model to Microfinance

The IFC is planning to buy a $30m remittance securitization from El Salvadorian cooperative Fedecredito, using the diversified payment rights (DPR) structure to benefit a microlender. “Fedecredito is the first time a financial intermediary just focused on the bottom of the pyramid has taken advantage of a fundraising product used by larger institutions,” Xavier Jordan, principal investment officer at IFC, tells LatinFinance. Fedecredito is a co-op owned by 55 credit unions and workers’ banks in El Salvador that raises funds and provides services to members. It has previously funded itself through banks, and the Banco Multilateral de Inversiones and other multilaterals, Jordan says. The IFC will purchase the 7-year deal, which pays a spread to Libor that Jordan declines to disclose. Remittance securitizations using DPR have been used before in the region, but by large retail banks, not microfinance institutions. Fedecredito processes about $200m in remittances per year, or 5% of El Salvador’s market, says Jordan. According to JPMorgan, El Salvador’s remittances rose 6.1% to $327m in May, taking the tally for the first 5 months of the year to $1.48bn, 2.6% higher than in the same period of 2009. It notes that the central bank is forecasting remittances to increase 4.6% year-on-year to $3.6bn this year. Jordan says the IFC is considering replicating the structure, as there are other intermediaries in Central America similar to Fedecredito. A structure under which the IFC invests along with a tranche of other investors is also possible.