Interview with Edgardo Alvarez, Secretary General of Association of ALIDE and WFDFI.
1. How important were the actions taken by development banks during the crisis generated by the Covid-19 pandemic?
They were extremely important, considering that the entire world was facing a crisis that was unprecedented and for that very reason represented a major challenge for public operators seeking to stem the economic downturn brought on by declining markets; where stronger counter-cyclical financial measures made the difference between the bankruptcy of many businesses and, with it, growing unemployment, and the channeling of financial recovery and maintenance of the sources of income of millions of people. Faced by this challenge –not unheard of for these institutions–, development banks drew on their experience to commit thousands (K) of millions (M) (US$B in the US) of dollars to stem the adverse effects of the health crisis. Latin American and Caribbean public and national development banks are disbursing between US$ 270 and US$300 K M (US$ B) dollars every year. Insofar as direct pandemic finance is concerned, these financial institutions played a key role for, according to Eclac, they allocated the equivalent of US$ 93 K M (US$ B) in such financial assistance. In the year 2020, 71.2 % of these institutions raised the balance of their loan portfolios by an average of 21%.
2. What are the priority lines of action, themes, or sectors for the development banks in your region?
LAC development banks have focused their efforts on financing strategic areas like: a) financial inclusion and digital banking; b) economic and social infrastructure; c) technological development; d) environment and climate change; and e) social responsibility and gender equity. They are actively engaged in promoting medium- and long-term finance; in participating in joint financing systems with bilateral and multilateral organizations; and in achieving structural vitality by scaling up technologies in different production sectors. The banks are also delving more deeply into financing infrastructure works, particularly those having to do with the energy sector, by designing instruments coordinated with national country programs, together with maximizing and raising private capital. In the area of technological development, they are boosting innovation ecosystems in order to facilitate the emergence of startups and technology-based enterprises. Insofar as the environment and climate change are concerned, they are playing an outstanding pioneering role in these endeavors and in broadening their funding sources in the capital market by issuing green and thematic bonds in general and have a demonstrated capacity for promoting risk-taking by financial intermediaries and for securing access to international funds. This is combined with their support for sustainable agriculture, with a view towards ensuring food security while fighting poverty and hunger.
3. How strongly does climate change impact your region and what are development banks doing to adapt to and mitigate it?
Given its geographic diversity, our region is particularly vulnerable to the impact of climate change. It is estimated that towards the middle of this century the cost of confronting variations in rainfall patterns and rising temperatures and sea levels could cost the region about 3% of its GDP. Losses occasioned by natural disasters over the past 10 years in the region have been estimated by Eclac at US$40 K M (US$40 B), which will force the governments –and hence the development banks as the financial branch of public policies— to reallocate funds to sectors previously suffering from a lack of sufficient resources. In this connection, development banks are promoting long-term investment in projects in the sectors of sustainable urban mobility, sustainable agriculture, renewable energy sources, efficient equipment, sustainable cities, climate change, waste management and greenhouse gas emission reduction services. This, in addition to offering greater incentives for initiatives with a socio-environmental impact and linked to financing under ESG (environmental, social, governance) criteria.
4. What do you consider that development banks in your region should focus on more strongly to improve job creation and, in general, the people’s well-being?
It is clear that as labor-intensive enterprises that operate in all economic sectors, like agriculture, industry, trade and services, Micro and SMEs are basic actors that require not only financing, but also supplementary support in order to make their projects financially viable, such as guarantees, blended finance, the creation of a lender ecosystem in which seed capital and/or factoring are operative elements, investing in funds that support high-risk enterprises, as well as technical assistance and training. In
that connection, development banks are turning increasingly towards the use of new digital technologies in order to include more people and enterprises in the financial system. This can be illustrated by the various electronic factoring programs, digital guarantees, leasing, digital wallets, applications and platforms for speeding up the loan process that are being used by these institutions.
5. In perspective, how do you view the importance of the development banks in your region? Is there a genuine interest in strengthening them and giving them a key role to play in the countries’ development?
Throughout our history, development banks have played an important role in the region, considering that developing countries generally have lacked properly functioning financial markets in which private banks, for example, did not finance infrastructure and long-term projects and, for that reason, well-conceived projects failed because of a lack of funding. Furthermore, the existence of stronger interlinkage among markets, making them more susceptible to contagion and the
expansion of crises, converted LAC development banks into national counter-cyclical macroeconomic policy instruments, helping to keep up investments when economies slowed or declined. This important counter-cyclical role played by NDBs is recognized by the different governments in the region, which have adopted them to supplement fiscal measures, policies and monetary and financial regulation. Another immediate and crucial role has been added to these: that of supporting efforts to fight climate change in order to move more strongly towards decarbonized and climate-resilient economies.
6. In this new post-Covid-19 international scenario, how do you see the relationship between development banks and a global initiative such as Finance in Common?
It is at its best at this moment. Finance In Common – FIC has given development banks the opportunity to: work together, as a community and as a system with its interested parties; explore their complementary features; make optimum use of the diversity and the added value of all the different kinds of banks and networks in order to share best practices and innovation; and improve strategic alliances so as to heavily channel new financial resources into areas
relating to the implementation of the Paris Agreement on Climate Change and the 2030 Agenda for Sustainable Development and other global goals.
7. Do you consider that international organizations and global summits like the United Nations Climate Change Conference of the Parties (COP) are giving development banks the position they are entitled to and taking advantage of their potential? What would you propose?
It appears to me that we are in a strongly growing relationship, for national development banks are being increasingly seen to possess a huge potential (not yet fully exploited) for backing up the critical transition towards a low-carbon-emission and climate change-resilient economy.
It is important to stress that these national institutions complement the action of the multilateral system and hold a series of undeniable comparative advantages, thanks to their possession of a broad knowledge of the opportunities for, and barriers to, investment in their local markets, together with long-lasting relations with the public and private sectors and a mandate for national development.
8. Just how committed are the development banks in your region to the sustainable development goals (SDGs)?
I would say that in general they are committed, despite the fact that not all of them have a clear and firm mandate linked to sustainable development that includes supporting national strategies for development and contributing towards the attainment of the SDGs in general. Information is still sketchy insofar as an analysis of their loan portfolios and an allocation towards the fulfillment of certain SDGs are concerned. Although the development banks are attentive to all of the SDGs, they have moved ahead towards certain goals like decent work and economic growth, accessible and non-polluting energy, action in regard to the climate, sustainable cities and gender matters, and transportation and sustainable agriculture, among other things. Difficulties still exist in adding other goals, but this may be due to the governments’ difficulties in defining a national agenda or strategy for their attainment, as much as to the lack of sufficient financial resources.
Even so, development banks serve as a basic promoter for contributing to the countries’ more rapid attainment of the SDGs. These institutions have also pioneered other initiatives to boost the SDGs, such as the issuance of green, and now thematic, bonds. They are also incorporating climate and socio-environmental risk management in the projects they finance and implementing disinvestment strategies in high pollution and carbon-intensive sectors.
9. How are digitalization tools and financial technology being incorporated in development banks to enhance your region’s financial inclusion, and in general to improve their efficiency and coverage?
Come to think of it, digitalization in order to boost financial inclusion is nothing new to many of our institutions, but the fact is that Covid-19 did lead many other institutions that had lagged behind to speed up its implementation. To cite just a few examples, among Brazilian development banks, the BDMG (Banco de Desenvolvimiento de Minas Gerais) implemented an online loan disbursement platform in the middle of the past decade; the BNDES (Banco Nacional de Desenvolvimento Económico e Social) developed its BNDES card at the beginning of the past decade and has been updating itself in line with the new trends emerging since then; the bank offers a marketplace where accredited enterprises (manufacturers and distributors) sell their goods and services by offering the cardholder an attractive interest rate for the financings. In Mexico, Nacional Financiera is noteworthy for its electronic factoring program “Production Chains,” which, over its twenty years of operation has evolved in line with the needs of the users. Like these, other more recent experiences can be found in Chile, with its BancoEstado Pago RUT digital wallet and in Argentina, in Banco Provincia de Buenos Aires with its DNI (NID) Account wallet being used by over 3 million persons. Bancoldex in Colombia launched two platforms: one to link up formal and informal microentrepreneurs with lenders via Neocrédito, and the other, Digital Leasing, which links up those entrepreneurs with machinery and equipment suppliers in a digital environment.
10. What do you suggest should be done to strengthen and enhance the institutional presence of the World Federation of Development Financing Institutions at the global level?
I would venture to say that the key to this lies in continuing to strengthen effective links of collaboration and cooperation among development banks and different interested international parties, with regional and multilateral organizations, cooperation and development agencies, acting jointly to carry the voice of our financial institutions to global forums; at the local level, with the financial system like the private sector, the governments and all other lending institutions. All of this would help to develop and reinforce development bank efforts. This synergetic organization of forces, resources and experiences would enable the participating institutions to increase their loans and investments, promote dialogue and draw upon a wide range of instruments in order to provide an effective response to the crisis and tackle long-term structural problems that have traditionally blocked economic growth, and to build up their capacities.