Brazil will uphold the short-term financial sustainability and promote the economic recovery of micro, small and medium-sized enterprises (MSMEs) to support employment and tackle the COVID-19 crisis with a $750 million loan from the Inter-American Development Bank (IDB).
The project takes a multisector approach through productive financing with disbursements based on demand of credit lines that are expected to benefit more than 11,000 MSMEs affected by the crisis.
The program’s resources will be used by Brazil’s development bank, the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) to deliver financing to MSMEs through a network of accredited financial institutions to make up for the scarcity of short-term capital, overcome temporary liquidity problems, and provide continuity to their operations. They will also foster productive investment recovery and acquisition of production-oriented assets such as machinery, equipment, vehicles, and goods and services for production.
According to a recent survey on the COVID-19 impact on small businesses, 88.9 percent of Brazilian entrepreneurs have reported drops in revenue –of 69 percent on average– compared to a normal week. In addition, 58.9 percent said they had temporarily shut down, and nearly 68.1 percent said they needed financing to continue operating without downsizing staff.
In this context, this financing is an essential factor to help boost the chances of those MSMEs with a competitive advantage to enter, consolidate their position, and remain in the market. It can also help them narrow productivity gaps by making available resources that they can use to modernize production and reach out to new markets. Another program goal is to ensure the survival of MSMEs in a context of adverse shocks, particularly amid tightening credit in times of crisis.
In safeguarding Brazil’s productive fabric from the economic hardships associated with the pandemic, the challenge will be to keep open as many as possible of the MSMEs that were commercially viable before the crisis, while supporting the recovery of those that can continue operating normally through financing for production-oriented investments.
The $750 million IDB loan is for a 25-year term, a grace period of five and a half years and an interest rate based on LIBOR and has a local counterpart of $150 million.