María Shaw-Barragán is the Director of Lending in Africa, Caribbean, Pacific, Asia and Latin America at the European Investment Bank (EIB). In these regions, the EIB is focused on development to enable economic growth and opportunities aligned with the global strategy of the European Union (EU). Shaw-Barragán joined the EIB more than 20 years ago and has had a number of responsibilities, including Head of the Strategy Division or inside the Legal area.
- What are the current priorities of the European Investment Bank in Latin America and why?
As the European Union bank, the European Investment Bank (EIB) supports the EU’s relationship with Latin America by financing projects that contribute to the EU external policy objectives: the development of economic, environmental and social infrastructure; private sector development; and climate change mitigation and adaptation.
The EIB started investing in Latin America in 1993. Since then, the EU bank has supported almost 140 projects with total financing of around EUR 10.4bn spread across 14 different countries.
The EIB, as the world’s largest multilateral provider of climate finance, aims to dedicate at least 25% of its investments to climate change mitigation and adaptation, supporting low-carbon growth. Mobilising finance for climate action is one of the EU bank’s priorities across Latin America.
Most financing of the operations in Latin America is carried out under a European Commission Mandate, which supports the EU’s policy objectives and provides for EIB financing. We will continue working in the region to support investments that trigger sustainable economic and social growth, in particular, focused on the environment, and especially on boosting renewable energy, energy efficiency and sustainable public transport.
COVID-19 and Team Europe
The EIB has been fully mobilised to minimize the consequences of the pandemic providing finance for the economy, health systems and R&D efforts at a global level.
As part of ‘Team Europe’ set up by the European Commission, the EIB Group is committed to provide financing up to EUR 5.2bn to strengthen urgent health investment and accelerate long-standing support for private and public economic resilience in more than 100 countries around the world.
Our EIB response in Latin America and the Caribbean to tackle the consequences of the COVID-19 epidemic will reach USD 550mn. This includes recent microfinance support for COVID impacted companies in Brazil via Banco do Nordeste do Brazil, Banco Regional de Desenvolvimento do Extremo Sul and Banco de Desenvolvimeto de Minas Gerais, the Banco Ademi and Banco Adopem (BBVA Microfinance Foundation’s entity), in the Dominican Republic and Nafin in Mexico.
The EIB is currently appraising direct support to Governments and public entities to tackle immediate health needs as well as building up a pipeline of projects in the area of economic recovery, notably supporting MSMEs and Midcaps.
The greatest challenges we face today are global. This is true for climate change and the need to build new models of sustainable and resilient development. It is equally true for the coronavirus pandemic that threatens to erode some of the progress made on poverty reduction around the world.
As the world’s largest multilateral development bank, the EIB has the means, and the experience, to help nations outside of Europe meet these challenges.
- In the last few years, environmental sustainability policies have become a top priority for large companies. Why is it so important to integrate this dimension in the region? What EIB projects would you highlight and why?
Latin America and the Caribbean are rich in natural resources, biodiversity and vital ecosystems. Many countries in the region face socioeconomic challenges and are highly vulnerable to climate change. Natural disasters have repeatedly caused devastating effects on lives, livelihoods and economies, disproportionately affecting the most vulnerable. Moreover, urban pollution and waste treatment represent enormous challenges besides the rising demand for energy and transport due to demographic changes and urbanisation. In Latin America and the Caribbean, the EIB helps communities adapt to climate change and become more resilient to natural hazards. We support the reduction of carbon emissions and the protection of the environment and biodiversity. The EIB is scaling up its financing to foster the transition towards more digital, green and circular economies. Our investments with low-cost funding create new jobs and reduce socioeconomic inequalities. We often combine our loans with EU-backed grants to lower investment costs, or for technical assistance and developing skills to ensure the projects we support have a greater impact.
Investing in climate-friendly energy provision is one of our core businesses, because of its importance for economic development and its great potential for climate change mitigation. We support solar, wind, hydro- and geothermal power and stable grids that prevent energy losses. Through energy-efficient production methods and energy-smart buildings, companies can reduce their carbon footprints and save money. Our investments in renewable energy also support employment. For example, the EIB partnered with a few subsidiaries of European energy companies to finance wind farms in the Brazilian.
- The 2020 activity report ‘Crisis solutions’ tackles EIB investments in climate, environment and development, mentions as well the role technology plays in the transition towards more sustainable habits. What financing needs exist in this area and what type of incentives does R&D need?
The fourth industrial revolution, which is based on accelerating the process of digitalisation, is currently underway. This revolution and its disruptive technologies are rapidly transforming the relationship between individuals, economies and societies. According to the World Economic Forum, 60% of global GDP is expected to rely heavily on digital technology by 2022. The interlinkages between digital transformation and economic development are well established, including the impact of infrastructure on growth and specific economic development outcomes, such as job creation, market access, health and education.
“60% of global GDP is expected to rely heavily on digital technology by 2022”
Digital technologies similarly contribute to climate action and achieving environmental sustainability targets by offering novel prospects to unlock sustainable innovation, create new jobs, decarbonise and generally boost efficiency. With the transition to a digital era, new technologies’ development cycles have shortened and their disruptive impact is often greater. This changing technological landscape requires development finance institutions to provide public sector and private corporate lending, intermediated financial instruments, and blended funds.
- What is the role of the private sector in the socioeconomic recovery of developing countries?
The private sector is recognized as a critical stakeholder and partner in economic development, a provider of income, jobs, goods, and services to enhance people’s lives and help them escape poverty. Growth, poverty reduction, and improving people’s lives require a vibrant private sector. There are still enormous development challenges in increasing inclusive growth, reducing poverty, and improving people’s lives. The private sector has a key role to play in addressing these challenges by supporting inclusive growth, poverty reduction, job creation, and access to critical goods and basic services and by providing tax revenues.
Multilateral development banks and bilateral development finance institutions play a significant role in supporting the private sector in developing countries. They provide critical capital, knowledge, and partnerships; help manage risks; and catalyze the participation of others. They support the kind of entrepreneurial initiatives that help developing countries achieve sustainable economic growth. This role is becoming increasingly important for development institutions, along with more traditional aid and loan programs to governments.
To maximize development impact, public and private sector policies in each country need to be coherent and complementary. As such, IFIs should strive to focus on opportunities that best leverage national public and private sector strategies. There needs to be a virtuous circle between public and private undertakings to maximize development impact and ensure inclusive growth.
“There needs to be a virtuous circle between public and private undertakings to maximize development impact and ensure inclusive growth”
For the past five decades, we have delivered EU investments in Latin America and around the world. We have built significant development expertise and an increasing set of banking instruments to support private sector development in fragile economies.
Support for SME finance is an EIB Group core policy priority. The focus for the next few years will be on:
- Facilitating the availability of intermediated financing for micro-enterprises, SMEs and midcaps through a broad range of financial intermediaries;
- Continuing to address specific market gaps in SME and midcap finance such as gender inequalities and ‘Covid-19 support’;
- Responding to evolving EU policy priorities such as youth employment, competitiveness and the internationalisation of SMEs, always in close cooperation with the European Commission, Member States and public promotional institutions.
In Latin America, the EIB has been supporting SMEs, mainly through development banks throughout the region but alsobut although also private commercial banks. This support is not only for private sector boosting, but also takes into account specific strategic needs, such as renewable energy/ energy efficiency projects, in order to support the Climate Action in the region; as well as Gender credit loans, microfinance lending, among others.
Lending to MSMEs is not easy and it is important to have reliable intermediaries that are committed to serve the specific needs of this multifaceted segment. These intermediaries should ideally have a widespread presence on the ground in order to be close to the clients. Financial institutions should be able to scale and at the same remain close to their clients to be able to address the needs of MSMEs with well-designed financial products, through efficient delivery channels and in a socially responsible manner.
Besides making financial services available, financial intermediaries should also strive to promote financial education: this is of particular relevance for micro-entrepreneurs, who often are not familiar with the risks and opportunities of the different financial products that they could make use of. Promoting transparency, financial awareness and financial education is key to engaging the most financially excluded entrepreneurs. For such intermediaries to emerge and thrive it is important to create a proper ecosystem. Policymakers should establish a reliable and conducive business environment that favours financial inclusion and innovation. For example, policies that support the development of Fintech solutions and connectivity in remote areas can be of great help in reaching entrepreneurs that are underserved by the financial system.
The EIB is committed to advancing EU policies that support financial inclusion outside of the EU and to coordinate its action with that of local partners and other EU players (public and private) following the Team Europe approach.
- When it comes to microfinance and boosting financial inclusion, what type of programs does the EIB support and what criteria are important when assessing the project?
The EIB has been supporting the microfinance sector outside of the EU for more than twenty years, with a focus on neighboring countries (Middle East, North Africa and eastern neighbors) and on the Africa, Caribbean and Pacific regions. As the EU bank, the EIB supports the development policies of the EU and the priorities of the countries receiving funding: financial inclusion is a key objective and benefits are far-reaching. Providing loans and other financial services to micro-entrepreneurs can strengthen their source of income and make them economically more resilient, which can have a number of positive spillover effects, such as employment generation, more investment in the education of children, etc.
The financial instruments used by the EIB for microfinance operations come in the form of loans and equity participations. The funding is channelled either “directly” to microfinance institutions (MFIs) and small banks or “indirectly” through microfinance investment vehicles (MIVs) and microfinance holdings, in order to reach smaller players that do not meet the criteria for direct funding and to benefit from geographical and sectorial diversification. Moreover we support the MFIs with technical assistance programmes that address key needs such as –for example- the digitalization of operations, new product development to address disadvantaged categories (e.g. women, youth, etc.) or the strengthening of risk management.
The EIB aims at being additional to private investors, providing MFIs with financial conditions that are not easily available in the market, such as long term local currency loans or long availability period, which benefit the financial strength of the institution. Stronger intermediaries are better placed to attract other investors, and in this way, the EIB has also a catalytic role or multiplying effect, which eventually translates in higher volumes of financing to the final beneficiaries.
But volume and scale are not the only nor the most important aspects: the financially excluded or underserved need quality financial services that address their needs properly and responsibly. We ask MFIs to respect the internationally recognised client protection principles for microfinance operations, so that their clients are thoroughly and transparently informed of the terms of the services. Our partners should be mindful of the risk of over-indebting their clients, treat them respectfully and hear their voice, being it a voice of praise, a complaint or a suggestion to improve.
“The financially excluded or underserved need quality financial services that address their needs properly and responsibly”
In Dominican Republic we have partnered with Banco de Ahorro y Crédito ADOPEM, a BBVA Microfinance Foundation entity, since 2006 through several loans as well as an equity investment. The latest operation was signed last December for a loan of EUR 7m in local currency, which is part of the EIB contribution to the Team Europe response to the COVID-19 crisis and will support gender equality and female entrepreneurship in Dominican Republic.
In Latin America, the EIB has signed last year a EUR 200 million loan with Banco do Nordeste do Brasil (BNB), to support companies affected by COVID-19. The loan will help to address the working capital and investment needs of Brazilian micro-enterprises affected by the COVID-19 breakout, in the northeast, targeting the most vulnerable and very low income borrowers in the region, mainly women.
Furthermore, the EIB has signed a USD 150 million loan with Nacional Financiera (NAFIN), one of Mexico’s leading development banks, to support companies affected by COVID-19 in Mexico. The loan will help to address the working capital and investment needs of Mexican microenterprises affected by the COVID-19 breakout.
In its commitment to financial inclusion, the BBVA Microfinance Foundation has proven over the years to value the same principles that matter for the EIB, and to be able to deliver on the pressing social needs of the people it targets. We are exploring ways to further strengthening our collaboration with the foundation beyond the Dominican Republic, and to increasing the outreach in the most remote and difficult to reach rural areas. In the spirit of the Team Europe approach, this partnership among EU players has a strong potential to make a difference for many vulnerable people.