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Published:June 18th, 2007 05:11 EST
New Loan Program for Latin America Targets Small Businesses

New Loan Program for Latin America Targets Small Businesses

By SOP newswire

 

Washington -- The Bush administration, in partnership with the Inter-American Development Bank (IDB), is launching a loan program for small businesses in Latin America that it hopes will expand economic opportunities and energize economies in the region.

Spreading economic opportunity within and between the nations of the Americas is urgent and possible, " said Treasury Secretary Henry Paulson, announcing the initiative June 12 at the Americas Competitiveness Forum in Miami.

He said a key to reducing poverty and inequality is supporting entrepreneurs. As a more powerful group, they in turn can pressure governments to improve business conditions and governance, he added. (See related article.)

Paulson, a former chief executive of the Goldman Sachs investment bank, consistently has promoted readily available financing and modern financial markets as drivers of development and economic growth.

In Latin America, only one in 10 small enterprises has access to bank loans or other forms of commercial lending, according to the Treasury Department.  Banks shun small firms because they lack information on and experience with such businesses.

And lack of finance may mean the difference between success and failure, growth or stagnation, " Paulson said.

He said the loan program will address major barriers to lending to small businesses.

The U.S. Treasury and the IDB will provide technical assistance to help local banks build expertise and capacity to assess the creditworthiness of small companies. In addition, $150 million will be allocated by the Overseas Private Investment Corporation (OPIC) to share financial risk with U.S. and local banks lending to small enterprises. OPIC is an independent U.S. agency that provides loan guarantees to U.S. companies doing business in developing and emerging markets.

Credits under $100,000 denominated in local currencies will make up most of the lending, according to a Treasury fact sheet.

Which countries benefit from the program will depend on several factors, says an OPIC source, who did not want to be identified.

First, the fact that OPIC does not do business in certain countries disqualifies nations such as Cuba and Venezuela from participating in the program, the source told USINFO.

Second, no local bank will receive OPIC backing unless it has a U.S. partner and unless the host country`s political and investment environments are deemed sufficiently friendly by OPIC, according to the source.

OPIC-supported loans or loan programs also must meet certain standards related to human and workers` rights and environmental conditions.

Banks that do not qualify for OPIC support may seek financing through an investment arm of the IDB, according to the fact sheet.

The loan program also aims at improving regulation of small business lending, according to U.S. officials.

It is a big incentive to make the regulatory framework right, " the OPIC source said.

Paulson said the administration hopes the loan program triggers more widespread lending to entrepreneurs in Latin America.

Once participating banks demonstrate that it is profitable to lend to small businesses, competition will bring other banks into the market and the need for ongoing assistance should diminish, " he said.

Paulson said similar programs in Central and Eastern Europe and former Soviet republics in Central Asia generated more than $12 billion in new small business lending and helped transform financial sectors in those regions.

In April, OPIC approved up to $225 million in financing to enable Citibank to expand its mortgage and residential construction lending aimed at low- and middle-income sectors in 10 Latin American countries and Pakistan.

A transcript of Paulson`s remarks and a fact sheet on the new program are available on the Treasury Department Web site.

(USINFO is produced by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

Source:By Andrzej Zwaniecki
USINFO Staff Writer