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Colombia’s Small Businesses Get COVID-19 Relief with MIGA-Backed Loans from JPMorgan, Santander and BBVA

Paola Cubides manages the SL Store, a clothing shop in Cúcuta, Colombia, on the Venezuelan border. When COVID-19 hit, the chain had to close two warehouses for more than a month, limiting inventory of women's blouses, dresses, and pants, and slashing revenue.

Retail is tough under any circumstance. With COVID-19 and the lockdown required to fight it, the business becomes almost impossible. Fortunately, SL Store could tap a credit line from Bancóldex, a state-owned development bank that helps micro-, small- and medium-sized Colombian companies fund operations and gain access to export markets.

“The credit line has allowed us to endure these months of crisis,” Cubides says. Among the strongest features: a six-month grace period for repayment, and the low interest rate.

The Multilateral Investment Guarantee Agency (MIGA) is helping Bancóldex make more loans like the one that helped Cubides. MIGA is insuring a loan for as much as $400 million to Bancóldex from JP Morgan Chase & Co., Banco Santander, and BBVAThe MIGA guarantee protects the three banks from the risk of non-payment by Bancóldex for two years.

Bancóldex will lend the money to Colombian financial institutions, and they, in turn, will make loans to businesses, many of them micro-sized or small, like SL Store. Micro and small companies are eligible for working-capital loans of up to $750,000. Larger ones are able to borrow as much as $1.2 million. The loans will last for up to three years and will be aimed at crucial sectors of the economy, including manufacturing, retail, and transportation.

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Business Owners Who Have Received Financial Support from Bancóldex (Photos: Bancóldex)

The JPMorgan/Santander/BBVA loan is part of Colombia's Responde programs, which Bancóldex put in place early in the pandemic to help businesses, especially small ones, that couldn’t get loans they needed to pay workers and source raw materials.

The Responde programs got off to a fast start after COVID-19 hit. Through September, Bancóldex had approved $340 million of loans, supporting more than 36,200 firms, 90% of them micro-, small-, and medium-sized enterprises (MSMEs).

The MIGA guarantee helped Bancóldex secure funding in dollars at a reasonable cost. Colombian entities often tap international markets for funding, but that became more expensive during the pandemic as investors rushed to the safety of U.S. Treasury bonds and cut their holdings of corporate bonds and foreign debt.

Bancóldex leaders called on bankers they knew, but the lending rates were high, says Olga Calabozo Garrido, regional head of Latin America and the Caribbean at MIGA. They met with counterparts at the World Bank, and soon after determined that a MIGA guarantee would be the fastest way to get hard-to-find capital to Colombian businesses.

“We had a long-standing relationship with MIGA, and a long-standing relationship with the banks,” Garrido says. Bancóldex had never borrowed from JPMorgan, Santander or BBVA, banks that knew how MIGA’s guarantees work. “We introduced everyone,” she says.

The World Bank estimates that some 67 percent of Colombia’s 15-million-person workforce is employed in sectors that have been hard-hit by COVID-19. Many of those industries—construction, aviation, tourism, transport—ground to a halt when it struck.

As in many countries, the concern now is that many small businesses won’t survive the crisis without financial support. MSMEs contribute about 40 percent of Colombia’s GDP and account for 80 percent of the country’s employment, making their survival critical to Colombia’s recovery.

Juan Carlos Albarracín, manager of the Comfer building-supply store in Tunja, saw the peril firsthand. His sales fell 60 percent in March, April, and May, a potentially fatal decline. Fortunately, he got a Bancóldex loan, also with a six-month grace period.

“We’re going to use it mainly for payroll and supplier payments,” he says.

COVID-19 has hit the Latin American region particularly hard. However, the World Bank reports that Colombia, with greater fiscal space and economic momentum leading into the pandemic, might be in good standing as compared with its neighbors. The country is expected to contract by 4.9% in 2020, compared to a 7.2% contraction forecasted for the rest of the region. The rapid response of the banking sector only helps in the recovery.

Bancóldex is building a pipeline of additional credit lines and aims to boost overall funding under Colombia Responde to $657 million. Some of the proceeds from the MIGA-backed loan will be used to replace funds that were disbursed on an urgent, short-term basis in anticipation of the MIGA-backed loans being finalized later.

For Colombia, the additional capital from abroad makes coping with COVID-19 easier. For managers of small businesses, like Cubides and Albarracín, the new money is a lifeline.


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