The International Finance Corporation (IFC) has invested US$20 million in regional debt fund Kandeo 3D, asking it to lend loans to underserved mid-market enterprises (MME) in Colombia, Mexico, and Peru.
The objective is to contribute to strengthening the job security and local economic development of these countries, stated the World Bank subsidiary in a statement.
Lack of access to financing is a major obstacle for small and medium enterprises (SMEs) across the region. Barely 35.4 percent of MME investments are financed by banks in Peru, 44.8 percent in Colombia, and 8.6 percent in Mexico, according to the World Bank.
Many firms, even if they have access to credit from traditional commercial banks, are only able to secure short-term loans for working capital, which are not enough to modernize their businesses, boost productivity, and remain competitive in rapidly evolving markets.
“Strengthening the middle market could boost Latin America’s GDP growth by 50 percent, adding $1 trillion in GDP by 2030,” says Eduardo Michelsen-Delgado, Kandeo’s CEO, citing a past study by McKinsey & Co.
In LAC economies, according to the IFC, MMEs are needed to fill the gap between a small number of large companies and a high number of small and often informal enterprises, or what is often referred to as the “missing middle”.
The debt fund will prefer mid-sized companies providing well-paying jobs to people from the middle class.