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Development Banking in the Region Offers Mechanisms for Internationalization of SMEs

Study presents the results of an analysis done by ECLAC of 111 programs of development finance institutions in Latin America and the Caribbean.

2 December 2014|News

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Photo: Marcelo Sayao/EFE

Development banking in the region has made efforts to facilitate the internationalization of small and medium-sized enterprises (SMEs), given that most of their financing programs include these companies among their targets (92 %), establish flexible terms (36 %) and demand guarantees or endorsements adjusted to their possibilities, according to a report recently published by the Economic Commission for Latin America and the Caribbean (ECLAC).

The figures of the study Financing of International Trade and the Role of Development Banking in Latin America and the Caribbean (available only in Spanish) come from a new database, compiled by ECLAC's Financing for Development Division in 2013, on 111 programs aimed exclusively at financing foreign trade, provided by 23 development finance institutions (DFIs), also called development banks, from 14 Latin American and Caribbean countries.

The report is based on the assessment that foreign trade financing by intermediaries (mainly banks, both commercial and other) currently supports around a third of global merchandise trade, but warns that these mechanisms do not benefit small and medium-sized business in the same way they do bigger companies.

Meanwhile, Latin American development banking, which is fully or mainly public, has a smaller role in the provision of foreign trade financing, but could gain more relevance when it comes to increased access to that financing and support for the internationalization of SMEs, whose share in the region's total exports does not exceed an average 4 %.

With respect to the type of funding currently provided by DFIs, the study stresses that national development banks are making an effort to support small business by awarding more flexibility in their program deadlines, considering that 36 % of all programs assessed do not have set deadlines because the institutions adjust them to the recipient's needs.

Furthermore, most programs (74 %) do not place access restrictions based on company size, while 18 % have smaller firms as their exclusive recipients, which demonstrates the DFIs' effort to support these companies. Only a small minority of the programs (8 %) are geared towards medium and large businesses.

On the other hand, the report underlines that promoting intra-regional trade is not a priority for DFIs, given that most of the programs are of a general nature and thus finance any type of foreign trade. In 2013, intra-regional trade accounted for only 19.2 % of the Latin American and Caribbean total, far from the 59.1 % registered by the European Union.

The document indicates that in the majority of the programs (79 %) assessed, the institution itself delivers the resources directly to finance foreign trade operations-referred to as first-tier financing-while in 21 % of the remaining cases it can bid funds to be administrated by intermediate, or second-tier, financial institutions that are in charge of granting financing.

According to the report, this is consistent with the mechanisms of the region's national development banks, 63 % of which act as first-tier banks, which reinforces their functions as a complement to commercial banks.

The institutions with the greatest number of programs dedicated exclusively to foreign trade include Banco de la Nación Argentina (17), Banco do Brasil (14) and Banco Nacional de Comercio Exterior de México, Bancomext (12).