Thirty-Seventh Regular Meeting of the ALIDE General Assembly

INCLUSIVE GROWTH: THE CHALLENGE FOR DEVELOPMENT

BANKING
D
evelopment financing from a socially inclusive perspective and the long-term resources) have among the world’s lowest levels of
the function and role of development banking were the key capitalization –in the neighborhood of 20%. These markets are
topic addressed by the Thirty-Seventh Regular Meeting of the markedly procyclical: credit grows faster than the product during
ALIDE General Assembly, held at the Sheraton Hotel in Montevideo, boom periods and drops more heavily during crises, fueling the
Uruguay, on May 24 and 25. The event brought together 197 fluctuation of economic cycles. In addition, access to financial
participants, 162 of them belonging to institutions in 19 Latin services is unequal, for less than 5% of the poor have access to
American and Caribbean countries; 9 from 7 countries outside the credit
region (Canada, China, France, Germany, Holland, Spain, and the and less than 15% to savings, in comparison with families that are
United States), and 26 representing 13 international organizations not poor, in which case the figure are 8% and 33%, respectively.
and cooperative institutions.
Evidence shows that market mechanisms alone have not
Organized with the collaboration of Banco de la República been sufficient to promote access to financing and that, for that
Oriental del Uruguay (BROU), the Meeting was opened by Uruguay’s reason, public policies are needed to cope with market failures and
Minister of Economy to promote financial
and Finance, Danilo development.
Astori. The Minister Furthermore, improving
underscored the access to the financing
importance of system requires the
studying the role of participation of the
and challenges facing development and the
the development commercial banking
banking system in the systems, as well as of
present situation, in the capital market. In
which it must be this case, development
borne in mind that banking serves as an
while our economic instrument for
growth is essential, it harmonizing
is not enough, of commercial criteria with
itself, to produce development, which also involves basic concepts public policy in order to cope with problems associated with
like social justice, through which more equity is sought, particularly for transaction costs and information asymmetries.
those who have suffered the consequences of the crises in our
countries, and sustainable development that takes care to ensure It was pointed out, in addition, that inclusion must be
environmental measures and safeguards the conservation of our viewed from a threefold perspective: (a) as an ethical imperative
basic resources. and also one of economic right; (b) as a lever for development for
both people and our countries; and (c) as an opportunity to do new
It was stated at the Meeting that the low level of financial business and for innovation. Viewed in that way, financial inclusion
inclusion in Latin America and the Caribbean is nothing more than the is a benefit for our countries that should be strongly promoted.
reflection of financial markets with little development and depth.
Furthermore, inasmuch as our financial systems are basically bank- It was stressed that an inclusive financial sector requires
oriented and short-term, the securities markets (which should provide universal access to all financial services at reasonable costs; strong
institutions guided by specific regulations; financial and institutional
sustainability; and multiple service providers that will ensure
competitiveness and transparency. It also calls for a general political
context that includes: equitable growth, macroeconomic equilibrium,
strong institutions, a healthy financial sector, competition, diversity
and transparency. Likewise, interest rates that are in line with the
microfinancial situation, where the ceilings on those rates limit the
access to loans by the most needy sectors; of a cost policy,
because it is necessary to offset the higher costs associated with
the smaller microfinancial operations with appropriate costs and the
development of products to reduce other costs for institutions. It is
important to recall, as well, that an inclusive financial sector should
provide related non-financial services like training and information,
among others.

DECLARATION OF MONTEVIDEO
We, the representatives of the Latin American and Caribbean development financing institutions, gathered in Montevideo, Uruguay, on May
24 and 25, 2007, at the Thirty-Seventh Regular Meeting of the ALIDE General Assembly, declare the following:
1. We reiterate our commitment to fight the existing poverty and social exclusion of large Latin American and Caribbean population groups
that are failing to receive the benefits of the region’s growth and development and will not cease our efforts to get our institutions to
confront this challenge with concrete action through financial inclusion.
2. We believe that the massifying of access to credit under suitable conditions and with the use of appropriate technology, if possible,
constitutes a means with a great potential for getting the lower-income sectors to share in the fruits of economic development and
growth in a global economic context and that, in keeping with our institutions’ social mandate, it is our function and responsibility to
develop mechanisms to permit the access of these important social sectors to the formal financial system.
3. We are convinced that it is the duty of the State to create the necessary conditions for and promote the development of financial
markets, as well as to intervene in and create --when the market fails to do so--, development financing institutions to finance the
production and social sectors, always complementary to the activities of the private sector. The State should in no way give up this
function, inasmuch as it has been proven, particularly in the region’s recent experience, that the market is not always the best
alternative for reaching sectors with high social returns, which require long-term financing.
4. We verify the fact that public banks exist in most countries of the world and that these banks frequently have a significant presence in
and impact on their respective national banking systems and on the financing of the production and social sectors. For that reason, we
call for these institutions to move toward the adoption of corporate governance practices that will protect their management from
external intervention.
5. We respect decisions that Latin American countries decide to adopt autonomously regarding their development financing model,
inasmuch as we recognize that there is no sole development banking model, but that the latter is chosen in accordance with the needs,
level of development and particular situation of each individual country.
6. We reiterate our commitment to promote and support micro, small and medium-sized urban and rural enterprises, because they are
one of the most important and rapid alternatives for job creation, poverty alleviation and social inclusion. In this connection, we reaffirm
our conviction that it is necessary to broaden the range of resources and to reinforce our financing programs for micro, small and
medium-sized enterprise.
7. We express our concern over the negative effects that climate change and global warming produce in the lives of people throughout the
world, particularly the most vulnerable population sectors --that is, the poorest. In keeping with this, we commit ourselves to be more
careful in ensuring that the projects we finance are environmentally friendly, at the same time as we call upon international cooperation
organizations and institutions to work jointly to confront this challenge to mankind.
8. We recognize the importance of microfinance institutions as an instrument for enhancing the financial deepening and access of micro
and small business to the financial system. For that reason, we assume the commitment to support their strengthening and to provide
any assistance they may need on a basis of efficiency and self-sustainability.
9. We are pleased that our Latin American Association, which will celebrate its 40th anniversary this coming January 24, 2008, is firmly
established among the development financing institutions as their representative body and their spokesman with international
organizations, governments and society, and that it promotes the unity and reinforcement of banks and development financing
institutions in order to improve their contribution to economic and social progress and to our countries’ integration, and for that reason
commit ourselves to provide all our support to build the Association up as the Regional Forum par excellence for the analysis and
debate of issues concerning Latin American development financing and as a suitable mechanism for cooperation and the development
of joint Latin American development banking initiatives.
10. Lastly, we express our special appreciation to Banco de la República Oriental del Uruguay, and to the authorities and citizens of
Montevideo, for their warm hospitality extended during this Thirty-Seventh Regular Meeting of the ALIDE General Assembly.

Montevideo, Uruguay, May 25, 2007

- PAGE 2 -
 INTERVIEW WITH ROMMEL ACEVEDO, SECRETARY GENERAL OFALIDE
Taken from BNamericas
Latin America and the Caribbean is experiencing some of its strongest economic growth ever, finishing in 2006 the most vigorous three-year
period since the 1970s. Moreover, the overall economic outlook for the region in 2007 does not differ substantially from a year ago.
However, Latin America's erratic growth has stopped short of reducing poverty and inequality. In a region rich in natural resources and
human capital, income distribution is more unequal than anywhere else in the world and nearly a quarter of the population lives in poverty,
roughly the same as in the late 1980s.
With such challenges for human development, the role of development banks in the region is key. Although there have been some failures
and cases of misuse of public funds, there are also success stories in Latin America's development banking sector. BNamericas spoke to
Rommel Acevedo, executive secretary of Latin American Association of Development Financing Institutions (ALIDE), about the challenges
faced by development banks in the region and their outlook for the future.

BNamericas: In Latin America, a number of development banks BNamericas: Which are the main challenges facing Latin
that were not financially viable failed, were closed and privatized. American development banks?
What's your view on this? Acevedo: Development banks must pursue macroeconomic goals
Acevedo: During the 80s and 90s, as former such as employment, education, social housing,
IDB president Enrique Iglesias has repeatedly among others, but at the same time, they must
said, Latin America experienced what he meet microeconomic conditions or be financially
called a "banquicidio", or the closure of several viable.
public banks. The most extreme cases took
BNamericas: Does it mean there is no more
place in Bolivia and Peru. In Peru, under the
room for banks that are not financially viable?
autocratic regime in 1991, banks attending
Acevedo: Development banks cannot afford only
industry, mining, housing and rural sectors
to look at one side of the coin, pursuing social
were closed.
goals. Development must be financially viable.
BNamericas: However, many banks in Latin And financial viability is crucial when banks need
America were closed after cases of misuse to meet their funding needs in domestic and
of funds were detected. international markets.
Acevedo: In many cases, it's true funds were
BNamericas: Let's suppose development
misused. Public sector banks were vulnerable
banks are well managed and without corrupt
to political influence. It is true, as has been
practices. Do you think Latin American
said, that some loans financed acquisitions of
development banks can be financially viable?
4x4 vehicles instead of capital goods for small-sized agriculture
Acevedo: Yes, I do. I also think development banks will adapt to
producers. There have been corrupt practices at many public sector
upcoming needs. In Asia, Europe, both regions where there are
institutions due to political or economic influence.
highly developed countries, there are very important public sector
BNamericas: How can the vulnerability of public sector banks to banks. Examples are Spain's Instituto de Crédito Oficial, which
political influence be avoided? supports SMEs in exports, and Germany's KFW, which plays a key
Acevedo: First, banks must be financially viable, second, they role in supporting small-sized companies.
shouldn't have to depend on government resources.
BNamericas: How much does competition from commercial
BNamericas: Could you mention an example? banks affect development banks' performance?
Acevedo: There are a number of development banks that generate Acevedo: I think it's good development and commercial banks
profits for governments, such as Chile's BancoEstado. An official from complement their activities. Second-floor development banks are
BancoEstado told me if the bank had made losses for the clear examples of complementary activities since they provide
government, it would have been privatized a long time ago. resources to other financial intermediaries for development
purposes, to meet SMEs financial needs, to capitalize microfinance
BNamericas: Considering there is strong competition among
institutions.
financial institutions in many Latin American countries, how
Chile's BancoEstado and Peru's Banco de la Nación, have a strong
much room there is for development banks?
presence in locations where private sector banks have no
Acevedo: Development banks can make a significant contribution by
branches. This has enabled BancoEstado to gain clients and offer
financing activities unattractive to private sector banks or too risky to
microfinance products.
be served by the private sector. These are the areas where
development financial institutions can play a significant role. BNamericas: Some private sector banks have started to attend
clients previously served by public sector banks. If that's the
BNamericas: But if private sector banks are not attending these niche
case, do you think it's better for development banks to exit
markets, it suggests they aren't profitable.
their markets rather than competing with commercial banks?
Acevedo: Development banks must obviously pay a lot of attention to
Acevedo: If private sector banks target a market previously served
market evolution and business profitability.
by public sector banks, I don't think public sector banks should exit
their markets. If that's the case, the market has the final say and

- PAGE 3 -
there will be obviously competition among private sector and state-run
banks. However, this competition would not be generated by public
sector banks.
BNamericas: So you don't think development banks should
compete with private sector banks for clients already served by
private sector banks?
Acevedo: I don't agree with the idea of public sector banks entering a
market already well served by private sector banks. Private sector
anks can enter markets already well served by public sector banks,
which means state-run banks could decide to exit their markets if
commercial banks prove efficient.
BNamericas: So the main goal for development banks is to
create markets?
Acevedo: Exactly. Many people believe state-run banks hold up
market development. But development banks are not here to distort
markets, they create markets. And what is the market? Private
sector agents. So development banks are here to facilitate the
activities of private sector agents.

APPLICABILITY OF PREBISCH’S THINKING IN THE TWENTY-FIRST CENTURY

Close to 300 people gathered this past May 21st in the auditorium of
Banco de Desenvolvimento de Minas Gerais (BDMG) to discuss Latin
American economic and social development with renowned
specialists, in the light of the thinking of Argentinean economist Raúl
Prebisch (1901-1986), considered the most influential economist in
the region’s economic thinking. At the initiative of the Government of
Minas Gerais State, the Seminar was organized by Banco de
Argentinean economist that he considers basic were his nature of
and skill as an educator and his enterprising spirit as creator of
important institutions like the Central Bank of Argentina, founded
during the crisis of the 30s, and the Economic Commission for Latin
America and the Caribbean (ECLAC), among others.
He also emphasized the so-called “Manifesto of 1949”, a document
prepared by Prebisch for the United Nations, in which he pointed

In order: Aécio Neves, Governor of the State of Minas Gerais, Enrique Iglesias Ibero-American Secretary, Jose Luis
Machinea , Executive Secretary of CEPAL , Fernando Henrique Cardoso, of Brazil; and Julio María Sanguinetti of
Uruguay presidents fomers respectively
Desenvolvimento de Minas Gerais (BDMG), ALIDE and the Economic out the region’s most telling development problems, which had an
Commission for Latin America and the Caribbean (ECLAC) and was enormous impact because it synthesized all of his innovative
attended by former Presidents Itamar Franco --the present Chairman thinking. In his opening address, Aécio Neves, Governor of the
of the BDMG’s Board of Directors-- and Fernando Henrique Cardoso, State of Minas Gerais, stressed that it is essential to understand
of Brazil; and Julio María Sanguinetti of Uruguay. Other distinguished Latin America’s true situation in order to foresee a better future for
speakers were economists Enrique Iglesias, Ibero-American the region. In this connection, he underscored the dedication of
Secretary of the Ibero-American General Secretariat (SEGIB) and Raúl Prebisch, a defender of what is known today as social
José Luis Machinea, Executive Secretary of ECLAC. liberalism, which points up individual and property rights, but also
Enrique Iglesias defined Raúl Prebisch as a visionary, a pioneer in the trusts in the State’s planning role, as an instrument for economic
region’s development. Some of the characteristics of the great progress and the promotion of social justice.

INTERVIEW WITH LUIS REBOLLEDO SOBERON, PRESIDENT OF PERU’S

CORPORACIÓN FINANCIERA DE DESARROLLO S.A. (COFIDE)
1. What is your vision of the development banking system in COFIDE supports profitable projects and its contribution centers on
Peru, where economic growth is sustained, boosting production chains and assisting the
but strong social pressures --above all in the microfinance system, financial technological
interior-- clamor for more social inclusion? innovation and entrepreneurial development
Development banking in Peru must operate with programs through our Information, Simplification
an absolute awareness of the country’s social and Entrepreneurial Formalization Center,
problems. It must be made very clear, however, (COFIDE CENTER) and projects like that of the
that social pressures must be met through Voluntary Development Promoters (CGVD) that
specific social programs, public investment, bring the supply and demand for labor into
education, and health, among other things. The contact with specific projects.
major social problems can only be resolved 2. This new government in Peru has put
through State policies that get to the root of the problem with long- forward some interesting ideas, like the Highland Exporter
term solutions. Like any other development bank in Latin America, Program, support for Micro, Small and Medium Business,

- PAGE 4 -
productive decentralization and regional development, among remind you that COFIDE is a wholesale bank, which makes it
others. What does COFIDE plan to do to support all of these difficult for it to contribute directly to the solution of the process of
government initiatives? increasing bank access and use in the country.
COFIDE is actively involved in the cited programs in the context of its Even so, we are doing something. Through our work with the
development financing. The Highland Exporter is an innovative Chambers of Commerce throughout the country, we are
program that seeks to develop production chains in Peru’s highlands implementing training, simplification and formalization programs
by bringing together producers (peasant communities), entrepreneurs that help convert informal businesses into formal enterprises, so
with export experience and the State to create the infrastructure for that they can obtain their sole taxpayer’s registry number (RUC)
and provide the necessary technical assistance to boost the almost and open a bank account in the retail financial system.
50 projects scheduled for 2007. COFIDE will help structure the
financial operations and will furnish the resources to make these In addition, COFIDE has been carrying out a program called Loan
projects a reality. and Savings Unions (UNICAS), which cultivate and promote family
COFIDE’s traditional function is to support micro, small and medium saving to create production units that are initially self-financing and
business. When it was turned into a wholesale bank, it continued to later accede to the formal financial system. COFIDE has set up 110
support this sector with financing through the banking and non- UNICAS in Northern Peru with over 9,000 people, involving them in
banking system supervised by the Office of the Superintendent of bank operations, which raises bank access and use among sectors
Banking and Insurance (SBS) and some of that were initially excluded. We have
this sector’s growth can be attributed in part decided to replicate this model in 2007 in
to COFIDE’s assistance. regions of Ayacucho, Huancavelica and
Insofar as productive decentralization and Puno to help fight poverty and promote
regional development are concerned, saving and bank access and use.
COFIDE is working through the Chambers
of Commerce (17) located throughout the 5. Any development strategy that is
country to advance training and put into practice in the country
administrative simplification and recognizes the importance of small
formalization programs and to identify and medium business. Have there
projects suitable for financing by the been any innovations or are any new
Corporation. programs planned to support this
entrepreneurial sector?
3. One of the major weaknesses of the COFIDE is a leading institution in the
Latin American countries is their lack of development of financial technology.
infrastructure and Peru is no exception. We have developed and are boosting
Its investment needs are large. Do you our Structured Financial Products
think COFIDE should play a part in this (PFEs), whose analysis no longer
field? How should it act? What should centers on the subject of credit, but on
it do in the sphere of infrastructure the production chain that will guarantee
development? repayment of the loan. It consists of
Peru is doubtlessly heavily lacking in typical project financing in which the
infrastructure, which explains the so-called social exclusion to some operation is initiated with a coordinator who gathers the producers,
degree. The government has launched a vast investment program in identifies the market, establishes relations with the suppliers and
this area and is implementing specific projects to contribute to town provides the technical assistance required by the project.
connectivity, provide the most distant zones with energy for business
and enterprise development, and supply water through the Water for In this context, COFIDE is developing the financial engineering for
Everyone Program, in its effort to alleviate extreme poverty. the project’s implementation and is interesting banks and
We in the Corporation are seeking ways to participate in projects of microfinance institutions in carrying out the retail financing operation
this kind, but are limited by our status of wholesale bank, which with funds supplied by the Corporation. The producer produces in a
impedes us from assuming direct risks. We are considering some context in which its market is assured and almost all of the risks
amendments to our establishing law to enable us to participate have been mitigated, turning the PFEs into successful financial
directly in coinvestment and cofinancing operations with multilateral products that will further one of the government’s key programs, like
organizations through concession financing and public – private the Highland Exporter projects.
projects. In the degree to which these changes are made, COFIDE
will play a highly active role in infrastructure development. 6. In your opinion what should the relationship be between
4. Levels of bank access and use are comparatively lower in development banking and private banking? What roles should
Peru than in the other Latin American countries and this each play in this matter?
situation is even more serious in the country’s interior. What Historically, relations between the public and private sectors have
efforts is the Corporation making with respect to financial been complex and even controversial. In the financial terrain,
decentralization? private banking has been hard put to understand that development
The low level of bank access and use in Peru is a matter of banking completes the work of financing the production sectors
permanent concern that has to do with the widespread informality of efficiently. As defined in recent years, development banking fulfils
entrepreneurial activities in our country. However, I would like to the function of resolving market failures, difficult access to credit,

- PAGE 5 -
the problem of asymmetrical information and participation in higher- manufacturing and trade.The financial technology being developed
risk sectors. by COFIDE to benefit the Municipal and Rural Savings Banks and
EDPYMES, seeks to facilitate access to credit and reduce resource
Peruvian development banking and private banking today are costs in order to boost the sector’s growth, as well as the execution
complementing each other’s role and perfecting criteria, such as, for of subordinate operations to build up equity and raise its leverage
example, that of a single banking offer, which should be interpreted level.
not only as their coexistence in the same marketplace or locale, but in
accordance with the sectors they serve. In this case, development 8. What is COFIDE’s outlook for the next few years?
banking works with microbusinesses that fall outside the scope of To continue growing and to continue being Peru’s major
action of private banking and for that reason their work is development bank, by boosting our financial and non-financial
complementary. products.
On the other hand, we are implementing the “development financing In the area of our financial products, we will continue our
system,” which consists of different levels of coordination among intermediation operations by channeling resources through the
officials of institutions involved in the area --in other words, Banco de financial system; we will continue forming trusts, either credit,
la Nación, AGROBANCO, Highland Exporter and COFIDE. The management or guarantee, by facilitating operations and reducing
committees of presidents, general managers and risk and finance risks; we will foster the growth of our structured financial products
managers are all contributing to a well-coordinated effort that includes for the development of production chains; we will make our financial
relations with the private banking system. operations more sophisticated by adding coverage operations with
derivatives and will seek to amend our establishing law so that we
7. The microfinance industry, which in its early days enjoyed
can assume a retail bank’s risks in national development projects
considerable COFIDE assistance, today has been consolidated
through syndicated operations to support the implementation of
as one of Latin America’s best experiences. What more can the
infrastructure and other concessions.
Corporation do to support microfinance development in Peru?
COFIDE continues to actively further the development of microfinance
And insofar as our non-financial operations are concerned, we will
institutions. Training, equity building, access to credit and the
promote decentralization, business formalization, and our Volunteer
reduction of interest rates are our main objectives in this important
Development Promoters Program and will further our social-
sector. Our interest is in supporting micro and small business, using
financial support programs through the Únicas.
fund allocation criteria different from those of the commercial banking
system and this methodology has been appropriately developed by
The outlook for COFIDE is very good. All we need to bring to bear
microfinance institutions.
are our efforts, imagination and the conviction that we will do
Through this specialized system, COFIDE is assisting different
everything well.
production and service sectors, like agriculture, mortgage,

AGRICULTURAL FINANCING PRODUCTS AND SERVICES IN

BRAZIL’S BANCO DA AMAZONÍA
Banco da Amazonía (BASA) is
a Federal commercial
development bank subject to
the development policies of the
Brazilian Amazon region. It has
a 116-agency network that
enables it to cover the nine
states in that region by serving
94% of the municipalities
located in those states. The
Bank is one of the region’s most
important financial agents,
contributing 84% of Amazon
development credit.
The Bank’s lending policy seeks
to promote regional
development by extending
coverage to all geographic
areas and their respective inhabitants. In other words, it has an
implicit financial inclusion target that will, in turn. step up the people’s
production capacity. It is precisely in this latter aspect that the Bank
prioritizes infrastructure financing, support for entrepreneurial
innovation and labor training assistance, so that it will be capable of
producing greater added value.
The projects to be financed should promote job and income
creation in the region and, of course, should also be technically,
economically and financially viable. In addition, they should be
limited to activities within the sphere of the region’s sustainable
development. It should be added here that in order to gain further
flexibility and coverage, the proposals will not be subject to
cadastral limitations, but, however, as a competitive element, they
are required to observe pertinent health, environmental and other
legislation.
BASA has implemented different programs that have resulted in
innovative experiences. Such is the case of the reforestation
program that proved to be significantly helpful in diversifying the
productive base, as did promoting the implementation of
agroforestry systems in family agriculture, which enlarged the area
sown with eucalyptus.
The Bank has also promoted production chains linking family
farming with agroindustrial units, the most noteworthy experiences
being those involving vegetable oils and biodiesel. Enhanced
productivity and competitiveness were the result of the application
to stock raising of modern methods involving the transfer of

- PAGE 6 -
 embryos and genetic improvement. It is important to stress here that infrastructure like refrigeration equipment, tractors, processing and
these interventions were carried out bearing in mind the sustainable treatment equipment and machinery, and irrigation. The interest
management of the region’s resources. Among BASA’s main lines of rates charged are in the neighborhood of about 8.75% to 13.5%,
credit is rural credit which, as Table N°1 shows, includes a wide the Bank’s key characteristic being that it tends to set its rates in
range of subprograms designed to cover the needs of specific accordance with the amount of the loan and the size of the
sectors, at terms and costs appropriate enterprise; smaller businesses are charged lower interest in order
for the type of investment to be financed. The terms for the different to promote this enterprise segment.
types of financing range from 5 to 12 years and are granted mainly for
Table N°1: BASA Rural Credit
Program Objective Interest rate Finances up Maximum
to: term
Special Agricultural Financing
Various agricultural activities, from the modernization 13.5% 100% 5 years
of refrigeration to the purchase of small animals.
Agricultural modernization Incentivate soil rectification, recovery of degraded 8.75% 100% 5 years, 2 of
and conservation of natural cultivated pasture land and systematic organization of grace
resources fertile valleys, in order to increase grass production.
Agricultural Tractor Fleet Procure agricultural tractors and associated 9.75%-12.75% 80%-100% 6 years
Modernization implements and coffee processing equipment.
Irrigation incentivation Develop economically and environmentally 8.75-10.75% 100% 8 years, 3 of
sustainable irrigation farming; and expand storage grace
capacity in rural landholdings.
Development of Fruit Growing Finance investments to enhance productivity and 8.75% 100% 8 years, 3 of
production, as well as improvements in the quality grace
pattern and in marketing conditions for fruit products.
Agribusiness Support the development of, inter alia, farming,
aquaculture, poultry breeding, flower growing, sheep
and goat breeding, and milk cattle breeding.
Development of Cooperatives Enhance the competitiveness of the Brazilian 10.75% 70%-90% 12 years, 2 of
to Add Value to Agricultural cooperative agroindustrial complex by modernizing the grace
Production production and marketing systems.
Commercial Planting and Support the planting and upkeep of groves for 8.75% 100% 12 years
Grove Recovery industrial use; recomposition and upkeep of areas for
forestry conservation; and planning and upkeep of
forestry species for wood production.

As a retail bank, BASA’s loans should be applied directly in the preoperational expenses. Each cooperative is able to obtain
institution’s offices. The Bank performs the pertinent loan analysis in financing of up to $R20 million (US$ 9.5 million).
keeping with the abovementioned
credit policy and demands the Table N°2: BASA Agroindustrial Credit
necessary guarantees. Generally, Program Objective Interest Finances Maximum
those guarantees are required on rate up to: term
the basis of fiduciary property or FNO-Agroindustry Finances all of the goods and services LTIR + 70% -
are chargeable to the goods being needed for business establishment, Spread
expansion, modernization,
financed, whether such equipment
environmental adjustment and
is acquired individually or relocation.
collectively. Another important FAT- Proger Urbano Promotes micro and small business 16.33% 100% up to 8 years, 3
aspect is that the Bank offers development by improving access to US$180 of grace
advisory assistance from the very credit thousand
initial stages of the credit process FAT-Cooperatives and Promotes development of micro and 15% 90% up to 8 years, 3
to help entrepreneurs organize Associations small business production cooperatives US$430 of grace
their technical and financial bids. and associations thousand
LTIR: long-term interest rate
In the case of the cooperative development program, BASA acts as BASA also provides targeted support to small agribusinesses in its
an institution that intermediates resources from the Banco Nacional geographic area of operation (see microbusiness classification
de Desenvolvimento Económico e Social (BNDES). The purpose of table). The lines operated by the Bank are funded with resources
the program is to build up cooperative associations in the different from the Worker Support Fund (FAT), the Northeastern Financing
agroindustrial clusters by financing productive commercial and fund (FNO) and BNDES. In the latter two cases, the resources are
infrastructure projects. The Bank finances everything from the used mainly for project financing and, particularly in the case of the
investment study or project to the procurement of fixed assets FNO, for building up physical infrastructure for production units.
(including civil works and machinery), working capital, training and BNDES resources, for their part, emphasize the financing of

- PAGE 7 -
production and marketing, with a view to supporting the positioning and consolidation of production units.

Table N°2 shows BASA’s own lines (being designed) that operate
with resources provided by the abovecited funds. These point up the
Bank’s inclination to support micro and small business access to
credit and the strengthening of their associations. By way of example,
in the case of FAT-Cooperatives and Associations, loans are granted
for a term of up to 8 years, with financing that can cover as much as
90% in the case of fixed investments and up to 40% for working
capital.
billion. Of this amount, 93.5% was funded by FNO resources. A
total of 34,371 loans were allocated from this portfolio, with the rural
and agricultural sectors being the most benefited mainly because of
the region’s socioeconomic structure. These funds were channeled
for the purpose of reducing inequalities and promoting social
inclusion. In addition, the financing of activities carried out by
smaller production units was prioritized, particularly family-based
agricultural production.

A credit line that is of Insofar as portfolio

Classification of Beneficiaries of BASA Programs
growing importance quality is concerned,
Size Gross Annual Operating Income Foreseen
among the Bank’s Micro: Up to US$ 50 000
the loans made by the
operations is the line Small: Between US$ 50 thousand and up to 100 thousand
Bank, except for those
designed for the tourist Medium: Between US$ 100 thousand and up to US$ 640 thousand financed from FNO
sector. These loans Large: Above US$ 640 thousand resources, are for the
are intended to finance Beneficiaries are classified by size according to their gross annual operating income most part low-risk. A
fixed and working foreseen, as based on their projected production capacity. breakdown shows that
capital investments, 83% of the loans have
from the establishment, expansion or modernization of tourist an AA, A or B rating, 6.5% have a C and D rating and 10.9% have
undertakings to the promotion of production chains linking up different an E and H rating, being classified as higher risk. Almost the entire
sectors. Up to 100% of the investment requirements are financed, rural portfolio, amounting to about 38% of the Bank’s total loan
the terms are up to 10 years, priority is given to ecotourism projects portfolio, has a low risk rating, with only 5.07% being considered
and investments are aimed at ensuring self-sufficient electric energy high risk, thuss revealing the efforts made by the Bank in the area of
generation. BASA’s development loans in 2005 amounted to US$ 3.5 risk management.

FONDO DE GARANTÍA PARA PEQUEÑOS EMPRESARIOS

(CHILEAN GUARANTEE FUND FOR SMALL ENTREPRENEURS)
The Guarantee Fund for Small Entrepreneurs (FOGAPE) is a (a) institutions compete by guarantee coverage rate. The rights are
government fund established to guarantee a given percentage of the allocated in order of smaller to larger coverage, with the maximum
loan capital granted by both public and private financial institutions to coverage being 80% of the unpaid principal;
eligible small entrepreneurs that have no or insufficient guarantees to (b) eligible institutions may disburse credits subject to the
back up applications to guarantee for its
financial institutions for DIAGRAM N°1 effective term (2 months
working capital and/or FOGAPE OPERATION at present). Minimum
investment project financing. FOGAPE: level of use of the rights:
DELIVERS FEES,
MANAGER (BANCOESTADO) CHARGES AND
80% of the award;
BancoEstado, supervised by COMPETITIVE
BIDDING
COLLECTS (c) Up to a maximum of
GUARANTEES
the Office of the GUARANTEES 10 times the Fund’s net
Superintendent of Banks and RIGHTS
ELIGIBLE FINANCIAL
worth may be
Financial Institutions (SBIF), INSTITUTIONS committed. Its present
manages the Fund. It should LOAN APPLICATIONS AND PAYMENT OF LOANS, FEES commitment is in the
GRANTING OF LOANS AND ACTIONS TO COLLECT
be added here that according neighborhood of 9 for a
to the legal provisions, the net worth of
Manager (BancoEstado) approximately US$ 60
must hold bidding • SMALL ENTREPRENEURS
million; (d) beneficiaries
• EXPORTERS
competitions for the must pay a fee of up to
•GROUPS OF ELIGIBLE SMALL ENTREPRENEURS
guarantee rights among 2% a year on the
eligible institutions, which guaranteed sum.
may be awarded those rights Operator-based Model: Commissions may be
It evaluates, decides upon and grants loans subject to the guarantee.
in accordance with their bids. differentiated by
FOGAPE’s guarantee award institution and risk
operation may be summarized in the following steps: limitations, such as claim level and past due indebtedness; and (e)
processed loans are formalized by computer for the Manager.

- PAGE 8 -
.

The institution to which the guarantee rights are awarded may use in accordance with the regulations of the Office of the
Superintendent of Banks and Financial
Table N°1: Definition of FOGAPE’s Target Public Institutions, on the basis of its cash flows. In
Type of Beneficiary Maximum Level of Sales
other words, FOGAPE targets formal
Net annual sales of no more than US$ 476
businesses only, which also constitutes an
Small Agricultural Entrepreneurs
thousand. incentive for small businesses to become
Net annual sales of no more than US$ 850 formalized.
Small Non-Agricultural Entrepreneurs
thousand.
FOGAPE guarantees loans financing of from
fixed assets to working capital, provided that
Unlimited annual sales. Even so, at least 2/3 of
the natural persons who comprise them should
Organizations of Eligible Small Entrepreneurs
reach the maximum sales levels indicated for
these are directly related to the cited activity.
small entrepreneurs. By way of example, in the case of small
agricultural and non-agricultural
Average FOB export value (*) equal to or less
entrepreneurs, investment projects are
Exporters than US$ 16.7 million a year over the two financed for, inter alia, the procurement of
immediately preceding calendar years. machinery, equipment, premises, and
furnishings, and plant construction, for
them to process loans for eligible small entrepreneurs according to
example. Items related to working capital could include the
the regulations, over the maximum term defined in each bidding
procurement of raw material, payment of wages and salaries, and
competition. The current term is 2 months. In this way, loan
the procurement of goods. Financial debt refinancing is excluded.
applications subject to the Fund’s guarantee may be made directly to
A special aspect is that guarantees are also provided for financing
the financial institutions to which the rights have been awarded,
incorporation and/or contributions to production companies
including BancoEstado, and in the latter case the application may be
(associated with the applicant’s line of business), such as the
submitted at any of the offices that serve the country’s small and
establishment and incorporation of a small business.
microbusinesses.
The case of organizations of eligible small entrepreneurs, for which
Among the advantages of operating with FOGAPE guarantees are
production infrastructure items mainly are guaranteed, such as
that they make it possible to give direct access to credit to small
equipment and irrigation and/or drainage projects, is worth special
entrepreneurs who do not possess the necessary guarantees to apply
mention. Lastly, in the case of exporters, only working capital is
to the eligible institutions, in such a way that working capital needs
financed, which includes letters of credit, the purchase of raw
and investment projects may be financed. The FOGAPE system
materials, and PAE (?), etc.
does not demand additional guarantees; however, inasmuch as the
final evaluation is up to the financial institutions, the latter are
Generally speaking, FOGAPE guarantees up to 80% of installment
authorized to request complementary guarantees, should they
loans that range from one year (for exporters) to up to 10 years for
consider them necessary. FOGAPE’s target public is small
investments in fixed assets. The maximum loan amount is up to
entrepreneurs, whether natural or artificial persons,
from any economic sector that produces goods and/or TABLE N°2: LOANS AND GUARANTEES BY TYPE OF BENEFICIARY.
services. In order to be identified as a
microentrepreneur, such persons must observe the Type of Loan
Maximum coverage guarantee rate Term
criteria preestablished by law (see Table N°1). Beneficiary amount
Organizations of small entrepreneurs are also eligible For loans of up to US$ 136 thousand:
- 80% for loans for over 37 months and/or
to benefit, whether organized as non-profit artificial businesses that have been operating for less than
persons, partnerships or user organizations provided Small agricultural one year.
for in Water Codes (water use communities, and non- US$170 - 70% for loans for up to 36 months, provided that
10 years
commnities associated with water drainage works, agricultural thousand the business has been operating for more than
entrepreneurs one year.
water channel associations or other user - For loans of between US$ 136 and US$ 170
organizations that are credit subjects). As in the case thousand: 50%, regardless of the minimum term
of individual entrepreneurs, most of those who make and the age of the business.
up these groups must fulfill the requirements Exporters US$163
80% of the loan
1 year,
summarized in Table N°1. A sector of growing thousand renewable
importance in the Fund’s activity are exporters, Organization of US$816
identified as persons that have exported for an Small Entrepreneurs
thousand
80% of the loan 10 years

average FOB value equal to or less than US$ 16.7

million a year over the two immediately preceding calendar years. An US$ 120 thousand for small entrepreneurs, US$ 136 thousand for
entrepreneur should have a large enough payment capacity to cover exporters and up to US$ 816 thousand for organizations. Details
the loan being applied for and to demonstrate the business’s viability. are set out in Table N°2.
An element of particular interest is that in order to be a beneficiary, an
entrepreneur must be formally registered with Chile’s Internal FOGAPE guarantees two types of loans: so-called traditional loans
Revenue Service (SII). A risk rating of the business must be and stand-by loans. Traditional or effective loans refer to those that
performed by financial institutions with A1, A2, A3, B and C1 ratings, provide direct financing for a business’s needs, according to the

- PAGE 9 -
abovecited objectives or lines, and which represent a disbursement of FOGAPE use has climbed steadily over the past 6 years. From a
funds at the moment they are granted. The maximum term for this level of 200 credit operations a year and 3 banks making use of that
type of financing can be up to 10 years for small entrepreneurs and instrument in 1998, by 2004 there were over 34 thousand
eligible organizations and operations and in 2006,
one year for exporters. BAR CHART N°1 17 financial institutions
Stand-by loans, for their part, EVOLUTION OF THE NUMBER OF INTERMEDIARY INSTITUTIONS were operating with a
are a method of financing FOGAPE guarantee.
that does not involve a
disbursement of funds at the 0 17 18 17
This can be attributed to
15 17 16
moment they are granted, but 15 the joint efforts of
which can become effective financial institutions, the
loans. Examples of stand-by most important groups
loans are credit lines, representing micro and
7
factoring contracts, small business and the
performance bonds and 3 Fund management, a
letters of credit. The function performed by
maximum term is set in each 0 BancoEstado. The
bidding competition and at 1998 1999 2000 2001 2002 2003 2004 2005 2006 number of intermediary
present is two years. institutions rose from
1998 to its maximum
As for the costs, guarantee beneficiaries must pay a utilization fee level in 2003. Starting in 2004, however, as can be seen in bar
that can reach up to a maximum of 2% a year on the guaranteed chart N°1, mergers among financial institutions resulted in a
capital. At present, that commission is set according to each restriction on the participation of some institutions due to high
financial institution’s risk and is collected by the granting financial claims levels.
institutions themselves in accordance with the type of loan made. In FOGAPE shows growing activity, as also reflected in the value of
the case of effective loans, the fee is charged and apportioned with loans guaranteed (see bar chart N°1). These amounted in 1998 to
the same frequency as the loan interest (balance due), while the almost US$ 5 thousand, while by 2005 the figure stood at US$ 521
commission for stand-by loans is charged in advance for the full thousand, showing steady growth, particularly starting in 2000.
commitment period.

ALIDE PARTICIPATED IN THE ECOSOC REGIONAL CONSULTATION

At the invitation of the United Nations Economic and Social Council, The Meeting was mandated by the United Nations to study the
ALIDE participated in the trends in and progress of
ECOSOC Regional Consultation international cooperation for
of the Annual Ministerial Review development, in order to
for Latin America and the arrive at policies and
Caribbean, held in Brasilia, Brazil, recommendations to
on May 17 and 18, whose central promote more effective
topic was "Challenges of cooperation. It proved to be
Financing Poverty and Hunger highly interesting to identify
Eradication in the Region.” gaps and obstacles that in
Dr. Rommel Acevedo, Secretary the light of the practical
General of ALIDE, made a measures and policy
presentation in the first panel, on options recommended could
the Analysis of traditional truly be coherent with the
financing instruments and their Millennium Targets agreed
innovations, in which the other by the countries.
participants were Daniel Titelman, F r o m Rig ht to l e f t : Rom mel Ace ve do, G e neral S e c re t ary o f A LI D E; It should be added that, in
Head of the Development Studies José Luis Machinea, Executive Secretary of CEPAL; Everton keeping with United Nations
Unit of the Economic Commission Vieira, Subsecretary of Political Subjects of the Ministry of procedures and regulations,
for Latin America and the Outer Relations of Brazil; Nikhil Seth, Director of the Office the Meeting was open to the
Caribbean (ECLAC) and Mirela of Coordination of the Economic and Social Council of the participation of United
Pereira da Silva, from Brazil’s United Nations Daniel Titelman, Chief of Development Studies Nations organizations,
Institute of Applied Economic Unit of CEPAL international financial and
Research. The speakers in the trade organizations, and
second panel on Innovative financing sources for poverty eradication international and regional organizations, as well as of sectors
were Ricardo French-Davis of ECLAC and Ana Peliano from Brazil’s representing the private sector and civil society
Institute of Applied Economic Research.

- PAGE 10 -
 NAFINSA RECEIVES NATIONAL QUALITY PRIZE
Nacional Financiera’s efforts to diversify This recognition, conferred by President
and update its support programs for the Felipe Calderón on the Head of NAFINSA,
country’s micro, small and medium Mario Laborín, is the country’s most
business on the basis of financing, training important award for organizational
and technical assistance services, was excellence and serves as a model for
recognized this year with the awarding of contributing to the development of
the National Quality Prize. competitiveness in Mexico.

NEW MEMBERS OF ALIDE

The Brazilian institutions, Caixa Econômica Federal (CAIXA) and Banco da Amazônia (BASA), and Nicaragua’s Fundación para la
Promoción del Desarrollo Local (PRODEL) joined our Latin American Association.

CAIXA ECONOMICA FEDERAL BASA is actively involved in the

The Caixa, the federal Government’s development of Brazil’s Amazon (area
most important public policy agent, is a made up of the Northern Region, Mato
wholly-owned public enterprise that plays Grosso State and part of Marañón State), where it operates as a
a basic role in promoting urban development and social justice in commercial and development bank. Mâncio Lima Cordeiro is in
Brazil, thereby helping improve the quality of life of the Brazilian charge of the Bank’s Presidency.
people. Maria Fernanda Ramos Coelho is the Caixa’s President.
PRODEL channels financial and non-
TC INVEST, Invest (The Turks and Caicos financial resources to make them
Islands Investment Agency) has joined ALIDE available to local intermediaries that promote microeconomic and
as an Active Member. The institution is a housing development, by building up capacities in a search for
government agency whose objective is to social equity and the collective benefit.
promote the Island’s development by attracting The President of the institution is
new offshore investments, stimulating an enterprising spirit among its Raúl Zabalaga Estrada.
residents and promoting the financing of the local population. Mr. Welcome!
Conrad C. Higgs, the Chief Executive Officer, is responsible for the
Presidency. Welcome!

ALIDE PUBLICATIONS
RETHINKING THE ROLE OF NATIONAL DEVELOPMENT BANKS:
FUNCTIONS AND FUTURE CHALLENGES
Contains the presentations made and discussions held during the First Regional Consultation on “Challenges of the National Development
Banks,” promoted by the United Nations, ALIDE and Peru’s Corporación Financiera de Desarrollo S.A.. It examines the evolution of the role
of national development banks (NDB), with a broad and distinctive vision of Latin American and Caribbean
problems, retrieving their complementarity with private agents and the need to make them more effective.
Attention is also drawn to the importance of defining their functions more precisely to bring these into line
with global trends.

DATABANK 2007
ALIDE launched the 2007 edition of the Databank in a CD-Rom containing institutional and financial
information about more than one hundred Latin American and Caribbean development financing
institutions, including their operations and business and the parameters they use to rate micro and small
businesses.

ALIDE 2007 © P