24811 - Fundacion Social

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Summary of Proposed Investment

Project Number

24811

Company Name

FUNDACION SOCIAL

Date SPI Disclosed

Feb 27, 2006

Country

Colombia

Industry

Financial Markets

Projected Board Date

Mar 30, 2006

Status

Active

Sector

Other Non-Depository Credit

Department

Regional Industry FIG LAC & EUR

Environmental Category

Previous Events

Approved : Apr 4, 2006
Signed : May 25, 2006
Invested : Dec 19, 2006

Project Description

IFC is considering providing Fundación Social (the “Fundacion”) a long term loan of up to $50 million part of which may be exchanged into equity in any of the Fundacion’s investee companies. Following the appraisal the management team at Fundacion and IFC will jointly agree on the specific terms for this investment. This investment will allow IFC to support the activities of an entity which has an impressive track record of investing in socially responsible projects and targeting lower income households as its core clientele.

The Fundacion is regarded as a strong sponsor and has proven its ability to work with its investee companies through rough periods. Aligning with the Fundacion will provide IFC with a strong local partner which can facilitate further joint ventures going forward. This project will make IFC a proactive partner involved in steering the investment strategy of the Fundacion and move them further towards developing sustainable and financially sound private sector investments geared at providing services to the lower income segments of society.

Sponsor / Cost / Location

Founded in 1911, by Father Jose María Campoamor, a Spanish Jesuit priest, Fundación Social is legally established as a not for profit entity. The mission of the Fundación is "to work to better the livelihood of low income households by making investments aimed at removing the structural causes of poverty in Colombia". As such, the Fundacion has promoted itself as an organization catering to the needs of the middle and lower income segment of Colombian society and operates in all 6 geographical regions of Colombia. Managed as a private sector entity, over the last 85 years the Fundacion has invested in a number of ventures ranging from insurance, leasing, construction companies, television stations, savings institutions and banks. All companies within the group operate under the guidelines given by the Fundación which contributes to the coordination of their business activities.In order to maximize their potential.

The Fundacion has two main areas to develop its activity, one of those handles their direct social projects and the other one seeks for a permanent development and monitoring of its enterprises, with a clear commitment with a corporate social responsibility. Thereby contributing in a clear way to the mission of the Institution. The local development unit caters to the needs of the poor by providing services aimed at technical assistance and support to upgrade the lifestyles of the very poor in Colombia. These activities range from activating economic circuits within poor communities and linking them to the formal economy thereby further expanding employment opportunities; to training groups in order to allow them to better understand the benefits of organizational processes which enhance their capacity for dialogue, representation and decision making.

Board and Management:

The Fundacion has two separate Boards – one which oversees the developmental activities of the Fundacion and the other which monitors the investment activities of the Fundacion. The Consejo Directivo (CD) meets monthly to review the status of investments and formulate the investment strategy of the Company. The CD consists of seven members of which two have served for a term of over 5 years while the others are rotated after an average of three years. Members of the CD are well respected individuals and are chosen for their vast experience in the financial and management sectors. The management team is experienced and well regarded in the local market. The Corporate Vice Presidency, in charge of investments, is headed by Mr. Eduardo Villar. Mr. Villar has over 25 years of experience working in the private sector. He has a bachelor degree in economics and has been active member on the Board of a number of investee companies. His focus has always been in the financial sector and going forward he aims to build that aspect of the Fundacion’s business.

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.0
Equity

Development Impact

This project is expected to have a high developmental impact due to the following reasons:

- Provide funding to Fundacion Social, an entity with a track record of facilitating financial services to middle and low income households;
- Promote a sponsor of an IFC portfolio bank which has a proven history of successfully lending to SMEs and microfinance institutions in Colombia;
- The widening inequality within the different segments of society is driving some of the political changes being witnessed in the LAC region.

Sponsors such as Fundacion are a good partner for IFC as they work towards providing much needed financial and other services to low income households by investing in projects to address such inequality.

IFC’s role in this project is four-fold namely:

- support the development of the Colombian financial sector by providing financing to strong and well established local players thereby allowing them to enhance their operations;
- promote SME and micro credit products through the formal banking system and hence increasing the penetration rates for the banking sector in the lower income market segment;
- encourage the establishment of new financial sector entities promoting product lines (insurance and pension fund management) to low and middle income households; and
- be part of the growth process for the Fundacion.

This is an FI type 1 project. The Fundacion will commit to appoint a management person to act as its environmental advisor and to designate staff who will participate in an environmental capacity-building exercise. The Fundacion will further need to ensure that each of its investee institutions will maintain an environmental management system to assess that relevant operations comply with applicable host country standards and IFC’s Exclusion List – if need be, and to submit to IFC annual environmental performance reports providing a summary of annual environmental performance reports from its investee institutions.
Location of environmental documents In locally affected community

Contacts

For Inquiries About the Project, Contact

Eduardo Villar Borrero, Corporate Vice President
Fundacion Social
Calle 72 No. 10-71,
Piso 9,
Bogota D.C.
Colombia

This Summary of Project Information (SPI) is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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