Davivienda Helps Colombians Weather the Pandemic with Help from MIGA
María Clara Luque has seen the COVID-19 crisis in Colombia up close.
She is the general manager of Luque Ospina y Compañía, a firm that manages rental properties and sells real estate, and her revenue is taking a hit as the pandemic pushes Colombia into its first recession since 1999. Luque Ospina’s sales are down, and many tenants in her commercial properties are having trouble making rent, creating a cash crunch.
Fortunately, Luque Ospina has a backstop: Banco Davivienda, a large bank in Colombia with a long history of lending to small businesses that are owned by women. Davivienda is making more capital available to those clients with the help of a $50 million loan backed by the Multilateral Investment Guarantee Agency (MIGA) that will shore up its balance sheet.
MIGA, the insurance arm of the World Bank Group, is guaranteeing the loan against the risk of Colombia’s currency becoming inconvertible and any restriction on transfer of funds out of the country. Such events are rare, but having the insurance improves risk management.
“The services provided by Davivienda helped us stay afloat in the past four months,” Luque said. Most of her employees are women who are heads of their households. The loan, guaranteed by MIGA, has meant that Luque can keep those employees on the payroll.
“Had this not been possible, we would have had to let go of some of our staff.”
MIGA expects the loan to help remedy a shortage of capital available to Colombia’s female entrepreneurs. About 15 percent of them abandon their businesses for lack of capital, compared with fewer than 10 percent in Argentina, Peru and Uruguay.
Davivienda is a key player in the Colombian economy. A unit of Grupo Bolivar, the third-largest bank in Colombia by assets, Davivienda has over 16.8 million customers, 17,200 employees and around 680 branches. It is the largest housing lender in the country, with a portfolio of US$6.6 billion, or 25 percent of the market as of September 2020. Davivienda is also the largest provider of low-income social housing loans, with a portfolio of US$2.2 billion.
The loan Davivienda has received is part of a larger effort to assist Colombians during COVID-19. The International Finance Corporation (IFC), another arm of the World Bank Group, has committed $435 million to Davivienda to spur mortgage lending and small-business finance.
Like most countries, Colombia has seen a decline in demand for goods of all kinds, especially in travel and tourism. Demand for energy has also slumped, which creates unique problems in oil-producing countries like Colombia, where oil is the biggest export.
Including the energy sector, the World Bank estimates that some 67 percent of Colombia’s 15-million-person workforce is employed in industries that have been hard-hit by COVID-19, including construction, aviation, tourism, and transport.
The crisis is truly unprecedented. Ángela de Castillo owns one of the oldest hardware stores in Neiva, a small city southwest of Bogotá. She has been in business for 25 years and has never seen anything like it. Her sales fell by 70 percent, and she had to consider laying off staff. But she’s kept them on with help from Davivienda and its loan program.
“We are reorganizing, we are formulating a strategic plan, and once COVID is over and we are no longer living in confinement, we will do things the right way,” she says.
MIGA’s insurance covers $47.5 million of the loan to Davivienda for 11 years. The funds will help Davivienda extend protections to clients without jeopardizing its own business. Davivienda is letting mortgage customers hurt by COVID-19 defer up to six payments on their loans. Customers with personal loans, auto loans and credit card balances can defer up to four payments. Small businesses hurt by the pandemic are eligible for grace periods, too.
The guarantees are consistent with the World Bank Group’s goal of removing barriers to women’s control of assets and of narrowing the gender gap in small business ownership.
The loan comes at a crucial time for banks like Davivienda. In the wake of the 2008 financial crisis, global regulators introduced standards requiring banks to keep more capital on hand for emergencies. Colombia implemented the regulations in 2018. As a result, the nation’s banks need an estimated $7.8 billion during the next five years in order to comply.
The pandemic makes that compliance tougher because banks must take higher provisions for losses on defaulted loans, and those provisions eat into capital. This loan gives Davivienda the cushion it needs to make more loans further downstream.
In addition to supporting women-owned businesses and low-income housing, Davivienda plans to use the capital to back loans on green buildings, an area where it has expertise. In 2015, Davivienda launched four green financing lines to support cleaner energy production, energy efficiency, renewable energy, and sustainable infrastructure. In 2017, Davivienda issued a green bond and extended those lines to green buildings.
Even before COVID-19, Colombians faced housing woes. Just 37 percent of households are property owners, and mortgage loans account for less than 6 percent of GDP. The Colombian Chamber for Construction estimates that the country is short about 800,000 housing units.
The World Bank expects the Colombian economy to grow again in 2021, resuming a trend that lasted 20 years. Until then, the MIGA-backed loan will help Colombian businesses, especially those owned by women, stay liquid. Longer term, the boost to mortgage lending will help more Colombians buy homes and participate more fully in the recovery.