The IFC is mobilizing finance to the long overlooked private sector second tier in Latin America and the Caribbean. It has ramped up lending and equity commitments and hopes to accelerate this effort in the more impoverished countries.
The private arm of the World Bank is also lending more in local currency, pushing the development of onshore capital markets and cultivating relationships with second tier companies and banks. It hopes to build on its important technical assistance programs in the region’s poorer countries, such as Haiti and Nicaragua, to lend and invest more in the private sector.

The IFC’s mission to serve the private sector has accelerated at a time when credit is becoming increasingly available in LatAm and the Caribbean amid broader macroeconomic stability. “We realized two years ago that we needed to be shifting into the second tier and mid-sized segments very quickly,” says Atul Mehta, head of LatAm and Caribbean at the IFC. The IFC defines second tier companies as those unable to secure long term financing from local banks. They now account for 60% of the IFC’s business, says Mehta, compared to 16% in 2003. Mehta adds that as the region’s fortunes improve, so does the IFC’s capacity to focus on the mid-market.

The IFC is building larger teams on the ground to cultivate new relationships and be more responsive and in touch with clients. It has almost doubled headcount from 70 to 120 in two years since staffing up local offices, which in turn has helped create relationships at smaller companies and financial institutions, says Mehta. As the IFC broadens these relationships, Mehta sees recruiting and retaining talent as the biggest challenge, amid heightened competition for experience in the private and public sectors.

The IFC is also lending more in local currency – it made loans in reais, soles, as well as both Colombian and Mexican pesos in 2006 and 2007. Mehta says the bank plans to lend in other domestic currencies this year. “If the demand keeps growing, we will keep growing the local market currency product,” says Mehta. The IFC has nearly tripled the number of local currency loans it is making in percentage terms in just two years, with 30.3 % of commitments representing the equivalent of $540 million this year, compared to $175 million in 2005, or 12.5%. Last year IFC loans and investments increased by 46% compared to four years ago, to $1.78 billion for 68 projects. Mehta expects IFC loan and equity commitments to top $2 billion in 2008.

Beyond the Balance Sheet
Larry Hays, director of supranationals at S&P, says the IFC is having growing success mobilizing finance to the private sector beyond loan and equity. Its use of partial credit guarantees helped revolutionized mortgage financing in Colombia, for example. Titularizadora Colombiana, the secondary mortgage company, securitized assets ranging from mortgages to non-performing loans. The IFC is replicating Colombia’s model with Titulizadora Peruana, the first secondary mortgage entity in Peru.

And Mehta says the IFC hopes to deepen the secondary market for mortgages next year in Brazil, where it has set up two securitization companies. “The conditions are right in Brazil and we expect to support a domestic issuance of mortgage backed securities in coming months,” says Mehta.

The IFC hopes to broaden access to housing by helping less developed markets get affordable long term finance. In October, the IFC provided a $15 million line of credit to Nicaragua’s Banco de Finanzas to develop a housing line of credit for low and middle-income families.
Mehta says the trade finance program is at the heart of a new initiative to support smaller financial institutions in the poorer countries. Manuel Peña Morris, CEO of Banco Multiple León in the Dominican Republic, borrows from the IFC at the same terms as foreign commercial banks but values the technical assistance the IFC provides and the links to a global network of trade finance banks. He hopes to approach the bank for credit lines for infrastructure projects in the Dominican Republic.

The IFC establishes trade finance lines with the banks with the hope of broadening its services to include credit for mortgage lending. In some cases the IFC takes an equity stake as it did with Brazil’s Banco Fibra this year. That was its first equity stake in a second tier bank in Brazil. In Mexico, it also invested in Banco Amigo.

Mehta expects the IFC hopes to ramp up equity investment in the region going forward, describing the IFC’s equity portfolio in Latin America, as “a critical area of growth, especially in the smaller markets where there is significant need.” The IFC almost doubled its equity stake in the region from $109 million in 2006 to $384 million in September 2007. LF