We offer middle- and long-term funding to banks to mitigate mismatches between assets and liabilities and enable them to expand lending to underserved market segments. In some cases, it may be appropriate to make an equity investment to help a bank meet the more stringent capital requirements in place since the global financial crisis. Local currency instruments are also available to banks to help them reduce foreign exchange risks. We also provide advisory services to help banks strengthen their corporate governance; establish adequate controls to prevent money laundering and financing of terrorism; develop products to mitigate the effects of climate change and promote gender equality; and use digital technologies more effectively.
With internet connections and cell phone networks improving throughout the region, microfinance institutions are increasingly able to use technology to make financial services available in remote areas. Since many potential customers do not have a bank account or traditional credit history, these institutions are also using alternative scoring methodologies to assess credit risk. We support these types of innovation with loans and technical assistance, as a way to expand access to credit. We also offer local currency financing to improve the resilience of microfinance institutions and reduce their exposure to foreign exchange fluctuations. The number of microfinance providers is on the rise in the region, with retail chains, digital lending platforms and banks themselves targeting this niche.
Factoring and Leasing Companies
Nonbank companies can be another source of business funding. A factoring company, for example, typically advances a company money based on the value of its accounts receivables (less commission and fees), then handles collection of the outstanding invoices. The client gets access to working capital and can focus on business growth rather than debt collection. IDB Invest provides advisory and financial support to increase the use of digital technology in this field—such as by automating the approval, pricing and administration process—to lower costs and spur competition. It is also looking at equity investments in such companies to provide additional capital needed to promote growth.
Private debt funds and private equity funds—run by professional fund managers, primarily with money from institutional investors such as pension funds or insurance companies—have become an important source of capital, yet they still tend to be underused in the region. We invest in both types of funds to help fill the gap for long-term risk capital, putting a priority on funds whose investment objectives dovetail with our development mission. For the fund, having a multilateral development bank like IDB Invest as an anchor investor serves to attract additional private capital.