IDB Invest partnered with Fedecrédito, a cooperative of financial intermediaries, to support the issuance of El Salvador’s first social bond. The issuance will total US$80 million, with the initial tranche set at up to US$40 million. IDB Invest will subscribe up to US$20 million, with the remaining portion covered by other co-investors. 

The bond proceeds will be used to finance loans for micro, small and medium-sized enterprises (MSMEs), including those led by women, as well as home acquisition and improvement loans for women in vulnerable situations.

The new series of bonds are announced under Fedecredito’s Remittance Securitization Program. IDB Invest’s subscription is labeled as a social bond with a gender focus, adhering to the Social Bond Principles established by the International Capital Market Association (ICMA).

The Fedecrédito System (FDCS) is a cooperative network of financial intermediaries in El Salvador, consisting of 47 credit unions, seven workers’ banks, two insurance companies, Fedeservi, and Fedecrédito. Committed to the financial inclusion of MSMEs and low-income families, FDCS stands as the largest network of financial service providers in the country. 

Federcrédito, representing FDCS, serves as the financial interface between the cooperative, domestic and international lenders, and capital market investors. The funds obtained by Fedecrédito are distributed to member entities, reenforcing their capacity to support the community. 

Through this project, Fedecrédito will play a relevant role in strengthening the MSME and women-led MSME sectors in El Salvador by providing increased access to competitive, long-term funding. This initiative will reach a broader range of economic agents who have traditionally been underserved, promoting greater financial inclusion and economic growth.

MSMEs in El Salvador account for 99% of the active business sector and 67% of total employment. The vast majority are microenterprises and ventures, comprising 16.7% and 77.9%, respectively, while small businesses represent just 5.4%. With 58% of the country's microenterprises operating as subsistence businesses, 39.7% employing only family members, and 75% generating sales of less than $100 per day, supporting this segment is crucial for promoting social and economic development in the country. 

In addition to the financing challenges encountered by the MSME segment, there are issues with the quality of financing in terms of volume, tenor and cost. These issues are more pronounced for WMSMEs, as women in El Salvador generally exhibit lower rates of economic activity, reduced participation in the labor force, and lower school attendance compared to men. Despite women owning a majority of MSME businesses (54.2% of business owners), this statistic is heavily influenced by their predominant presence in the microenterprise segment.

The project benefitted from advisory services funded by the Women Entrepreneurs Finance Initiative (WeFi), These services focused on three key areas for WSMEs: developing a framework for the Social Bond with a Gender Focus, engaging a Second Party Opinion provider for an independent review of the Social Bond framework, and conducting an assessment of the women’s market. Actionable recommendations will be provided to enhance the credit scoring systems of one or two credit banks so that they can better capture and include financially underrepresented women in their portfolios.

The Project will contribute to three of the United Nation’s Sustainable Development Goals (“SDGs”): Gender Equality (SDG 5), Decent Work and Economic Growth (SDG 8), and Industry, Innovation, and Infrastructure (SDG 9).

About IDB Invest

IDB Invest, a member of the Inter-American Development Bank Group, is a multilateral development bank committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social, and environmental development in the region. With a portfolio of US$21 billion in assets under management and 394 clients in 25 countries, IDB Invest provides innovative financial solutions and advisory services that meet the needs of its clients in a variety of industries.     

About Fedecrédito

Fedecrédito (Federación de Cajas de Crédito y de Bancos de los Trabajadores, Sociedad Cooperativa de Responsabilidad Limitada, de Capital Variable) is an open-ended limited liability cooperative, regulated by the Cooperative Banks and Savings and Loan Associations Law, and supervised by the Superintendence of the Financial System. Its main purpose is to foster the development of an efficient, solvent, and competitive system of savings Banks and worker´s bank such as Sistema de Cajas de Crédito y Bancos de los Trabajadores, dedicated to providing financial services in urban and rural areas, mainly to low and medium income families, as well as to micro, small and medium sized business operating in various economic sectors in addition servicing public, municipal and private sector employees.  Fedecrédito has a portfolio of US$617 million in assets under management and a network integrated by 54 members entities.

About WeFi

We-Fi is a collaborative partnership among 14 governments, eight multilateral development banks (MDBs), and other public and private sector stakeholders, hosted by the World Bank Group. We seek to address financial and non-financial constraints faced by women-owned/led small and medium enterprises in developing countries.