48518 - DCM FDC Social DPR Notes

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Summary of Investment Information

Project Number

48518

Company Name

Federacion de Cajas de Credito y de Bancos de los Trabajadores SC de RL

Date SPI Disclosed

Dec 23, 2023

Country

El Salvador

Region

Latin America and the Caribbean

Projected Board Date

Jan 26, 2024

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Jul 21, 2024

Department

Regional Industry FIG LAC & EUR

Industry

Financial Markets

Previous Events

Approved : Jun 27, 2024
Signed : Jul 12, 2024
Invested : Jul 19, 2024

Sector

Microfinance and Small Business - Non Commercial Banking

Project Description

The proposed project is part of a financing package for Federacion de Cajas de Crédito y de Bancos de los Trabajadores, S.C. de R.L. de C.V. (Fedecredito or FDC), an existing IFC client. The financing package will be in the form of a Diversified Payments Rights (“DPR”) notes issuance of up to US$80 million, to be co-financed by IFC and other 3 co-investors. IFC is expected to finance up to US$30 million in its own account (“the Project”). The proceeds will be used to provide access to finance to micro and small enterprises (MSEs), Women-owned MSE, and women housing and home improvement loans to be reached through FDC’s member financial institutions (MIs). The DPR notes will be structured as a social note issuance, which will comply with the International Capital Market Association (ICMA)’s bond principles for these thematic bonds.

Associated Advisory Engagement

IFC will support Fedecredito through a Risk Management Advisory diagnostic.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to MSME (mix of Micro and SME)
Straight Senior Loan	Loans to Woman-Owned SMEs
Straight Senior Loan	Housing Loans to Individuals

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

The most significant expected Project-level outcome is increased access to finance for micro and small enterprises, including women-owned small and micro-enterprises, and housing and home improvement loans for women-headed households. Beyond the Project-level outcomes, IFC anticipates that the investment will promote the inclusiveness of the Salvadoran financial markets, through the introduction of social debt issuances. The market creation is expected via the demonstration and replication channels.

IFC’s additionality is financial and non-financial. The financial additionality will be delivered as (i) innovative financing structure, as Fedecrédito will issue a Social Note, the first issuance of this type in the country, and (ii) resource mobilization of up to US$ 15 million, by bringing a new co-investor to the transaction, not yet participating in the DPR structure. As part of this Project, IFC will support FDC to improve its risk governance and management through advisory services.

E&S Category Rationale / Risks and Mitigation

The Project involves a financing package of up to US$30 million in the form of Diversified Payment rights (DPR) notes issuance to Fedecredito, an existing IFC client in El Salvador. The project will support its portfolio of microfinance and SME loans through its Member Institutions (MIs), which have low to medium E&S risks, and as such has been classified as Category FI-2 according to IFC's Sustainability Policy. FDC products to its MSME members consists mostly of working capital and equipment acquisition, while for individuals’ members loans are mostly used for housing renovations and consumer loans.

Key E&S impacts and risks derive from FDC and the MIs’ capacity to identify and manage the potential E&S risks associated with its lending activities to MSMEs, in particular within the agriculture and construction sectors. E&S risks for these types of projects typically include: labor and working conditions, occupational health and safety, pollution prevention, and waste and wastewater management. As part of the Project, the client will be required to screen sub-loan E&S risks against the IFC Exclusion List and the El Salvador’s E&S laws and regulations. High E&S risk or category A projects will not be eligible.

FDC has implemented an environmental and social management system (ESMS) and has dedicated E&S staff in place to provide support to the MIs in the implementation of the E&S procedures. While the bank assesses projects E&S risks and include mitigation measures as required, assessment against local regulations can be improved. Thus, as part of the project, FDC will be required to enhance its ESMS to better manage risk of its projects by screening against national laws. FDC will remain committed to applying its current labor standards, which are broadly aligned with the requirements of PS2: Labor and Working Conditions.

S.no	Title	Anticipated Completion Date	Status
1	Training	10/31/2024	Completed
2	Enhance ESMS	08/31/2024	In Progress

Contacts

For Inquiries About the Project, Contact

Fedecredito
Oscar Perez
Director de Finanzas y Operaciones
(503) 2209-9630
oscar.perez@fedecredito.com.sv
25 Av. Norte y 23 Calle Poniente, Edificio Macario Armando Rosales Rosa, San Salvador
www.fedecredito.com.sv

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