MULTILATERAL INVESTMENT FUND MIF Promoting Private Sector Development in Latin America and the Caribbean

MIF - A Unique Instrument Conceived in early 1990’s to support wave of privatization and economic reform sweeping through Latin America and the Caribbean Created to help bridge gap between theory and realities of transition to market economy Built to test new ideas and catalyze reform

Broad and flexible mandate to: Support market reforms Build workforce capabilities and skills standards Broaden economic participation of smaller enterprises

Structured to Innovate Wide range of grant, investment and other financial instruments Acts directly with private sector as well as governments Pilots new development approaches and then shares lessons across the region

$830 million in over 520 projects Co-financing from partners brings total to $1.3 billion at work resources have been primarily directed to less developed countries

MIF focuses on Core Activity Areas MicroenterpriseMicroenterprise o- Innovation partnerships program o- Regulatory and supervisory framework o- Strengthening microfinance institutions Financial sector and capital marketsFinancial sector and capital markets - Capital market development –- Market transparency measures –- Regulatory reform and supervision Small businessesSmall businesses - Streamlining regulations - Innovative business relationships - Eco-efficiency - Quality management - Financing options - Information technologies - Skills standards and credentialing Market functioningMarket functioning –- Regulatory framework –- Facilitation of trade and investment –- Labour market modernization

Instruments Non-reimbursable Grants 54 operations in financial and capital markets US $ 71million approved Financial Investments $234 mm approved 56 deals Small Enterprise Investment Facility 7

Technical Assistance Grants to governments, local NGO’s, business associations To help fund programs that pilot new approaches to improve private sector Always funding a local partnership Sustainable, with demonstration effect MIF resources must be critical to outcome Focus on sharing lessons learned Average grant size $1-1.5 million

Financial Sector Reform Market Transparency Measures –Accounting and Auditing Standards Regulatory training and consolidation of financial sector supervision Capital Market Development –Harmonization –Clearance and Settlement –Removal of Barriers

Investments – Use of loans, guarantees and equity for microfinance and SME support Has enabled NGOs to become regulated financial sector institutions and grow beyond donated funds –MIF now has 14 such investments in its portfolio plus equity participation in five leading funds: Profund, Lacif and Solidus, Accion Investments and the Emergency Liquidity Facility Financed majority of microfinance activity in Latin America and the Caribbean total aggregate portfolio - $167mm – 650,000 clients

Investments MIF is also the leading investor in creating new formal risk capital vehicles for small business in the region – 35 funds –27 funds fully organized and partially disbursed. A total of 290 entrepreneurs are supported through MIF funds; about one quarter of these companies are startups. Funds target small business and start-ups that otherwise cannot access long-term risk capital

Credit Enhancement for Securitized Bonds

Principales Recipientes de Remesas de América Latina y El Caribe 2002 (en millones de US$) Remittances in selected LATAM countries 2003 (millions $US) Jamaica Honduras 2, Guatemala 2,106 México 13,266 República Dominicana 2,217 Haití Perú 5,200 Brasil 1,295 Ecuador 1,656 3,067 Colombia Cuba 1,194 Bolivia 340 1, Nicaragua El Salvador 977 Argentina Guyana Venezuela 247 Costa Rica 306 Trinidad y Tobago 88

R E M I T A N C E S LATAM 2002

Benefits of Securitized Remittances Banks can access longer term financing with remittance securitization Significant savings in interest rates estimated more than 150bp from an increase in the credit rating of B to BBB Improve the asset liability management of local banks through access to longer term/lower rate funding sources. Banks can pass on savings from remittance securitization to its customers and clients (e.g., longer-term loans or new products such as mortgage loans). Very low past defaults in future flow transactions Latin America.

Remittances Securitization: Flow of Funds USA/Europe LATAM Collecting Bank Master Account US$ Deposits (remittances) Trust Paying Bank (local) Paying Bank (local) Securitized Bonds Partial Credit Guarantee and/ or Subordinated Debt Institutional Investors Transfers (remittances)

Remittances Securitization: Transaction Structure USA/Europe LATAM Collecting Bank Master Account US$ Remittances Securitized Bonds Financial Tests CashflowCollateral Debt Service Reserve accounts Debt Payment Account Reserve accounts Provisions Accounts Acceleration Accounts Trust IDB PCG or Sub Debt Full Corporate Guarantee by Local Bank A cash shortfall in the trust, will be fund by the Bank through the guarantee. Local Bank (originator) Local Bank (originator) Collections paid to a Master account Reimbursement to guarantor from collateral pool Excess cash after funding structure accounts Remittances Beneficiaries Remittances Beneficiaries Investors Paying Bank in MXN