More jobs in Central America's small businesses

On behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) and the European Union (EU), KfW is providing loans, seed capital, loan guarantees and advisory services for small and medium-sized enterprises in Central America, which do not have adequate access to bank loans to date. With KfW's support, the Central American Development Bank (BCIE) will offer them tailor-made and innovative services. An initiative with a total volume of around EUR 76 million was adopted in Honduras at the beginning of December.

The Central American economy is growing, but not dynamically enough to significantly reduce poverty, unemployment and underemployment. The Central American Development Bank (Banco Centroamericano de Integración Económica – BCIE) supports small businesses in the region with various specialised loan programmes designed to encourage them to invest more and create jobs. KfW is now increasing its already extensive support for the BCIE even further. In the future, the focus will increasingly be on innovative, dynamic companies looking to secure particularly favourable financing terms. Investments by small and medium-sized enterprises in energy-efficient production facilities and their own renewable power supply will also be made easier.

“The programme is very innovative – both for the BCIE and for the region,” says KfW expert Vania Vega Ojopi. “Due to the high risk and lack of collateral from innovative small businesses and start-ups, financial institutions are often reluctant to finance them.” The project thus offers tailored financing for companies in their respective phases of development. “Which means the project is playing a pioneering role,” explains Vega Ojopi.

Better access to loans

Small and medium-sized enterprises employ about 45 per cent of the workforce in Central America. They make up the vast majority of companies overall. The problem: they are rarely granted loans from banks. Micro enterprises in particular are almost never able to offer collateral. The innovation project Dinamica helps to reduce financing costs for commercial banks and small enterprises, thus improving their access to credit. With KfW's support, companies in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama are receiving assistance.

In a first phase of this programme, more than 6,600 loans have already been granted to small business owners, almost half of them to women. Two thirds of these enterprises are micro enterprises, mainly involved in trade or agriculture. The new phase, to which KfW is contributing funds on behalf of the BMZ, builds on this success.

Funds and advisory services for start-ups

Another new feature is the seed capital that BCIE is providing to around 800 start-ups with EU funds. They each receive an average of around EUR 10,000, which is financed by the EU financial contribution. But it is not just about money: the supported start-ups are also given advice in twelve start-up centres, for example on how to formulate a convincing business plan.

Promoting investment in micro enterprises

In addition to the components geared to start-ups and innovations, the investment of small businesses in environmentally friendly production facilities and renewable energy generation will also be supported in the future. For example, funding is provided for the purchase of a more energy-efficient cooling system in the food processing industry or the installation of a solar power system. In the future, this investment financing will be facilitated by loan guarantees that BCIE can set up with EU funds managed by KfW.

The projects signed with KfW at the end of November and beginning of December will enable BCIE to further expand its role as the leading promotional bank in Central America through new and innovative financing options for small enterprises. The funded investments will boost the competitiveness of small enterprises, create jobs and reduce harm to the environment