Banco de Comercio Exterior de Colombia S.A.
On December 19, 2022, the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group (WBG), issued a guarantee totaling US$546.8 to JPMorgan Chase Bank N.A. (JPM) covering their three-year loan to Banco de Comercio Exterior de Colombia S.A. (Bancoldex).
MIGA’s coverage has been sought in relation to a Non-Honoring of Sovereign Financial Obligations by a State-Owned Enterprise (NHSOE) guarantee for a 1.423 trillion Colombian Peso denominated debt financing. The MIGA-guaranteed loan will be used by Bancoldex to on-lend through financial intermediaries (FIs) to support the liquidity of Micro, Small and Medium Enterprises (MSMEs) in Colombia and thus support the restoration of economic activity as part of the post COVID-19 recovery phase. Bancoldex will also use the funds to provide direct financing to MSMEs or refinance existing MSME loans currently on their books.
The Project involves targeted loans to MSMEs, mainly working capital loans. MSME activities typically have low to moderate environmental and social (E&S) risks and impacts which can be addressed through mitigation measures and as such, the portfolio risk is considered ‘medium’. This Project has thus been categorized as FI-2 according to MIGA’s Policy on Environmental and Social Sustainability (2013).
The main E&S risks of this Project relate to Bancoldex’s ability to identify, assess, and manage the E&S risks and impacts associated with its lending activities and the management of labor matters. MIGA analyzed the Bancoldex’s portfolio for types of transactions, tenor, size, industry sectors, and exposure to MIGA’s Exclusion List. MIGA also analyzed Bancoldex’s E&S risk management procedures in line with the requirements of Performance Standard 1: Assessment and Management of Environmental and Social Risks and Impacts (PS1), and Bancoldex’s labor practices in line with the requirements of Performance Standard 2: Labor and Working Conditions (PS2). The applicable E&S requirements for this Project are: (i) MIGA’s Exclusion List; and (ii) applicable E&S laws and regulations in Colombia.
MIGA previously supported Bancoldex from 2020 to June 2022 through a project involving targeted loans in response to the COVID-19 crisis. Bancoldex is a majority state-owned bank, which lends directly and on-lends through financial intermediaries (banks, financial cooperations, financial cooperatives and commercial finance companies specific to microenterprises, financial Non-Government Organizations, cooperatives with savings and credit activity, employee funds and compensation funds).
Bancoldex’s main products include, among others, a rediscount credit line and a direct credit line. MIGA’s facility will be used for the rediscount credit line which involves Bancoldex on-lending through financial intermediaries targeted to MSMEs, and the direct credit lines to MSMEs.
As of July 2022, Bancoldex’s portfolio composition per segment was 27% MSMEs, 19% corporates and 54% Financial Institutions, through the rediscount credit line. Bancoldex supports the following economic sectors: financial and insurance services, manufacturing, wholesale and retail trade, repair of motor vehicles, manufacturing, transportation and storage.
Bancoldex has minimal exposure through its rediscount credit line and direct lending to activities on MIGA’s Exclusion List (Production or trade in alcoholic beverages, excluding beer and wine) and to palm oil, coal and extractive industries.
In 2021, Bancoldex implemented a robust E&S Management System (ESMS) to identify, manage and avoid E&S risks related to its direct credit line operations and rediscount credit line transactions per its E&S manual. In addition, as part of its Credit Risk Management System, Bancoldex assesses the E&S process and capacity of its financial intermediary clients. Bancoldex also has an E&S team.
As indicated above, the proceeds of the MIGA facility will be used to support MSMEs. MIGA’s E&S requirements for MSMEs (Exclusion List and applicable national E&S laws) are covered in Bancoldex’s E&S procedures. Compliance with the Exclusion List is overseen by Bancoldex, and compliance with applicable national E&S laws is included in the facility term sheets (circulares) with the financial intermediaries. The Project will not support any activities related to palm oil or coal-related activities (such as coal mining, coal transportation, coal-fired power plants, or infrastructure services dedicated to support any of these activities).
MIGA reviewed Bancoldex’s emergency response plans and the plans were found to be in line with the requirements of PS1.
MIGA also considered the human resources and labor policies and practices of Bancoldex and determined that these are being managed in line with MIGA’s requirements under PS2. Bancoldex’s human resource policies and procedures include conditions of employment and compensation, working time, benefits and performance management, talent management, non-discrimination, grievance redress, provisions for the employees’ organizations.
Bancoldex participates in the Global Reporting Initiative and discloses on its website a Sustainability Report and Annual Report that provides information on its portfolio by business lines and economic segments, and human resources performance among other information in line with GRI standards. In addition, Bancoldex has an external communication mechanism in place that allows it to receive, track and respond to inquiries and complaints from the public regarding its operations.
Bancoldex will report periodically to MIGA on the breakdown of the portfolio, implementation of the ESMS and all applicable E&S requirements.
The Project supports the liquidity, resiliency and growth of Colombian MSMEs to help the restoration of economic activity as part of the post COVID-19 recovery phase.
The MIGA guarantee allows Bancoldex to boost its lending capacity to MSMEs, both directly and through FIs, allowing MSMEs to take advantage of the ongoing economic recovery from the COVID-19 crisis. MSMEs represent an important part of the Colombian economy as they contribute to 40% of GDP, generates about 79.1% of employment, and constitute over 90% of the country’s productive sector. The Project could have significant positive effects on MSMEs operating in various strategic sectors and possibly improve their contribution to the economy. The proposed Project also has the potential to increase access to finance to women owned MSMEs as well as climate finance projects. Furthermore, MIGA’s credit enhancement coverage is expected to support the diversification of Bancoldex’s funding sources and optimization of funding costs and tenors.
The Project aligns with the WBG priorities in Colombia as detailed in the most recent Country Partnership Framework (CPF) FY2016-2021 which was updated through the Performance and Learning Review (PLR) from April 2019. The PLR envisages a deepening of WBG engagement in climate change, Maximizing Finance for Development, and gender. The 2022 Colombia Systematic Country Diagnostic (SCD) clearly identifies that a MSME financing gap remains, estimated to be equivalent to 1% of GDP, despite MSMEs resorting to bank lending to a great extent. The SCD sets as a priority the objective to boost firm capabilities and innovation, citing specifically the need to scale up enterprise support programs aimed at promoting productivity, to which the Project is aligned.
The Project is also aligned with MIGA’s FY21-23 Strategic Business Outlook under its strategic directions of responding to the COVID-19 crisis by supporting economic recovery in client countries.