June 12, 2007 Fact Sheet: "I'm also directing Secretary Rice and Secretary Paulson to develop a new initiative that will help U.S. and local banks improve their ability to extend good loans to small businesses [in Latin America]. It's in our interest that businesses flourish in our own neighborhood. Flourishing business will provide jobs for people at home." "A thriving small business community can reduce poverty and inequality, as well as create jobs. When individuals turn their ideas into productive businesses, they make a transition from workers to owners. Ownership helps create sustainable and stable economies with broader opportunities for all citizens. Economic and social mobility have always been at the core of the U.S. system. We want to help Latin American countries create the same mobility for their citizens." Secretary Paulson announced today a three-part plan to provide the ways and means to encourage market-based bank lending to small businesses. The first two elements will provide support to banks willing to commit to specific and ambitious targets for small business lending. The third will address the regulatory environment. Subject to approval from its donor committee, the Inter-American Development Bank's Multilateral Investment Fund (MIF) will engage with selected interested and eligible banks to provide tailored technical assistance to work with banks to expand small business lending.
The Overseas Private Investment Corporation (OPIC), the U.S. government agency responsible for promoting social and economic development by mobilizing U.S. private capital, will offer risk-sharing guarantees and loans to eligible banks to extend/catalyze their financing activity for small and medium-sized businesses in the region. OPIC will provide support through three vehicles: Credit guarantees for U.S. bank loans to local banks to support "on-lending" (when one bank borrows from another bank and uses those funds to make smaller loans) to small business.
OPIC currently anticipates $150 million will be available for SME lending through these vehicles. The factors that will determine whether a bank qualifies for OPIC support are the potential benefit to economic development from the bank's SME lending activity, the bank's ability and commitment to build an SME loan portfolio efficiently and profitably, and the bank's ability to utilize OPIC support in a manner consistent with OPIC statutory requirements. The Inter-American Investment Corporation (IIC) of the IDB Bank Group is focused on providing financing to SMEs in the region. The IIC will build upon its relationships in the region to offer a similar menu of options to banks under the initiative, particularly those that do not qualify for OPIC support. Third, ensure that small business lending is not unnecessarily constrained by burdensome regulations or bureaucracy. In many cases, bank regulatory authorities perceive small businesses to be very high risk borrowers and impose heavy collateral and/or provisionary requirements. We will help introduce best practice regulatory models that ensure prudentially sound lending while avoiding requirements more suited to lending to larger firms.
Measurable Results. Tracking of the small business lending results is expected to be overseen by a program manager housed at the MIF. A steering committee will be created to oversee performance under the initiative and meet twice a year to ensure the program's effectiveness in catalyzing lending to small businesses.
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