IDB Supports Improvements For The Sustainability Of Colombia’s Social Security System

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By Godson Umejiego, Correspondent USA

With the objective of supporting the improvement of the Colombian social security system’s sustainability, the Inter-American Development Bank (IDB) approved a US$161.8 million programme. These will be destined to improve the management of the total cost of services and technologies in health, as well as the efficiency and coverage of the General Social Security System; and to increase health coverage for the immigrant population.

In Colombia, the social security system has made important structural advances. However, both COVID-19 and the sociodemographic transition facing the country, present challenges that threaten its economic sustainability and puts at risk the successes achieved in coverage and financial protection. Added to this, the country faces specific challenges to its social security system, such as limited financing for new technologies; a fragmented model of care; and a flow of migrants whose health needs are being attended through the emergency system and not the insurance.

The funds will be used for three components. The first component will seek to alleviate the pressures that affect health spending for the provision of services and technologies not financed with the per capita Payment Unit without affecting the quality of service provision. The second component is a model of comprehensive territorial action that allows improving the efficiency and effective coverage of the General Social Security System. The third component is coverage for insurance and services for the immigrant population, which will provide coverage to insure immigrants and coverage of services for the vulnerable immigrant population.

With this project it is expected to obtain savings for: services and technologies not financed with the Unit of per capita payment in contributory; number of departments / districts that are monitored for health promotion and maintenance program activities; and affiliated immigrant population.

The programme is made up of a US$150 million loan that will have a repayment term of 14.7 years and a LIBOR interest rate; and a US$11.8 million of non-reimbursable resources aimed at improving access to health for the migrant population, of which US$9.6 million are contributed from the IDB migration facility and US$2.2 from the German government. This operation is the first under the Disbursement for Results modality in Colombia. In addition, this programme is financed by an additional US$150 million from the World Bank.

Spools of thread and stacks of fabric in all possible shades and colors add a bright touch to Bulgan Lkhagvatsend’s tailoring store. She keeps her scissors and needles handy to catch up with the orders, not a moment to waste. Bulgan sews traditional Mongolian costumes mainly for the traders of Narantuul Trade Center, the country’s largest market.

In the last two decades, Blugan has had her share of good and bad. But earlier this year, when Mongolia took rigorous measures to prevent the spread of COVID-19, Bulgan had to shut down her shop in Mongolia’s capital, Ulaanbaatar. Something told her this time was different.

Confirming her fears, the global pandemic put Mongolia’s trade and economy under unprecedented pressure, and small businesses were hit the hardest. Soon, Bulgan had to temporarily lay off her two of her three workers.

Luckily, Bulgan’s customers stood by her. So did Transcapital LLC, Mongolia’s largest microfinance institution. Eventually, she managed to beat the market downturn, at a time when most businesses were facing a serious income loss.

She recalls, “My customers kept coming back to buy traditional clothes, my specialty, while referring me to their friends. One of my customers even arranged an order for 2,000 face masks.” Bulgan adds with a sense of pride, “Our quality products, which capture our passion in every seam, create loyal customers.”

Building capacity and improving skills

Weathering the impact of a global pandemic takes financial and business resilience. A strong partnership with Transcapital prepared Bulgan for difficult times.

In 2015, she started having trouble with her equipment, which was old and impacting the quality of her work. Bulgan desperately needed money to upgrade and expand her business. Unfortunately, given her existing mortgage loans and the size of her business, banks were hesitant to give her a loan. Just when she was at her tether’s end, a financial advisor from Transcapital visited her. After looking at her repayment capacity and potential revenue generation, he quickly issued a loan of 2 million tugrik (just over US$700). Unlike commercial banks, Transcapital takes the unique features of micro businesses into account when making a lending decision. For instance, many banks require official records, but Transcapital accepts handwritten accounting books to assess a borrower’s credibility.

Though a small amount, the loan helped Bulgan to buy a high-quality sewing machine and ample supplies at a low cost. She could then focus on improving the quality of her precision sewing. Soon, her income more than doubled and she managed to hire three more women.

In addition to funding, Transcapital equips small business owners with training. This helped Bulgan learn about the benefits of proper financial management and the possibility of having low-cost financing by repaying her loans on time. She also learned new ways to calculate costs and prices to ensure both quality and liquidity.

A resilient recovery for a better future

In Mongolia, lack of financing and capacity are key barriers for small business owners to grow and expand their businesses. The ongoing pandemic has further exacerbated the situation.

In response, IFC launched a series of strategic efforts to support Mongolian businesses since the outbreak. The latest initiative is an innovative Mongolia Tugrik (MNT)-denominated loan facility to Transcapital, which will ultimately benefit more than 15,000 micro and rural entrepreneurs.

“IFC’s innovative financing will allow us to expand our support to Mongolian micro and small enterprises while contributing to the nation’s effort to rebound from the COVID-19 crisis,” said CEO, Transcapital, Altanzul Zorigt.

The facility includes a three-year loan of about MNT 8.4 billion (about US$3 million) from IFC’s own account and a syndicated loan of about MNT 25.2 billion (about US$9 million) from impact investment funds. They include Invest in Visions GmbH, as arranged by German research agency, Agents for Impact GmbH and Co. KG, as well as BlueOrchard Finance Ltd.’s Microfinance Initiative for Asia, ACTIAM and Developing World Markets.

“This is the first time IFC has invested in a non-banking financial institution in Mongolia. This is also our first local currency syndication in the country. The financing signals our strong commitment to helping Mongolian enterprises in the recovery and rebuilding process in the wake of COVID-19,” said IFC’s Resident Representative for Mongolia, Alimardanov.

In its dealings around the globe, IFC works with microfinance institutions like Transcapital LLC to incorporate responsible finance practices into all aspects of business operations, including training, capacity building, and risk management, with actions to help protect borrowers and guard against indebtedness.

Meanwhile, Bulgan is ready for the future. For now, she is busy looking for convenient accommodation for her three employees—all single moms—to save commute time. The workplace can also be another major challenge for small-scale garment businesses, given high rental costs. She notes that rental support from the government for entrepreneurs like herself will enable them to make better and more affordable products.

The support for Transcapital is part of IFC’s COVID-19 response programme, which aims to protect businesses and jobs in developing countries, especially those in the most challenging markets. As it delivers its pandemic response, IFC is working to ensure that financing goes to the poor and vulnerable. In addition to financing, IFC also increased trade line limits for its partner banks in Mongolia earlier this year under its US$2 billion fast-track trade-finance envelope.

Global Response, Regional Impact in the Fight Against COVID-19

When fighting a global crisis, it’s important to focus on local impact.

The coronavirus pandemic has triggered the deepest global recession since World War II. Developing countries are being hit hard, with as many as 150 million people at risk of being pushed into extreme poverty by next year.

Yet the nature of the health crisis, and the scale of the economic damage, varies widely from country to country. Some countries have largely reopened their economies, while others are still in the thick of the battle against the virus, and others reverting to closures in the wake of subsequent waves. Some developing countries have been simultaneously hit by a downturn in commodity prices, adding to the economic and fiscal pressure. While coordinating globally, therefore, policymakers are also sensitive to the needs of their individual countries. Ultimately, the on-the-ground impact of development finance happens at the local level.

In responding to the pandemic, IFC is striving to strike the right balance between global scale and targeted impact, while also ensuring our interventions enable a sustainable recovery. IFC has committed US$4 billion from its US$8-billion fast-track COVID-19 facility, which aims to sustain businesses and preserve jobs amid the pandemic. That includes the full US$2 billion allocated under the trade-finance envelope of the facility, and an additional US$2 billion spanning every region in which IFC operates.

As it delivers its pandemic response, IFC is working to ensure financing goes to the poor and vulnerable . Of the US$4 billion in total financing committed so far, 48 per cent is expected to benefit people in the poorest countries and fragile states.

Here’s a flavor of how IFC is assisting countries around the world cope with the pandemic:

Supporting small business in Sub-Saharan Africa

In sub-Saharan Africa, where the World Bank Group is predicting the first recession in 25 years, IFC has invested almost US$1.1 billion through the fast-track COVID-19 facility to shore up the trade and liquidity needs of the private sector.

This includes loans totaling US$300 million to major financial institutions in Kenya and Nigeria. Equity Bank in Kenya, and Zenith, Access and FCMB banks in Nigeria will use the bulk of IFC’s funding to on-lend to thousands of small and medium-sized enterprises (SMEs) facing working capital and trade-finance shortfalls because of disruptions caused by COVID-19.

Access Bank “recognizes the importance of SMEs to economic stability and is going the extra mile to ensure that such businesses are adequately financed to weather these testing times,” said Herbert Wigwe, the bank’s chief executive. “IFC’s funding will not only enable us to extend financial relief to our clients across all sectors during the pandemic but beyond the COVID-19 crisis as well. Our partnership with IFC will help Nigerian businesses weather COVID-19 and set a course for recovery.”

With the support of the IDA Private Sector Window, which is being mobilized for the COVID-19 response, IFC provided a long-term loan in local currency to International Medical Group (IMG) to strengthen services at the healthcare provider’s Ugandan hospital and clinics, allowing them to continue to deliver quality medical care, including not-for-profit services, to low-income patients in the country. A subsidiary of CIEL Healthcare Limited, IMG offers private healthcare services, including the International Hospital Kampala and 17 clinics across Uganda, serving over 300,000 patients annually in the country.

Supporting Africa’s smaller businesses with these and other investments during the crisis is essential because of the vital contribution they make to employment, business activity, and the provision of goods, services and technology. In Côte d’Ivoire, to help companies whose cash flows have been disrupted by the pandemic, IFC provided a US$28 million loan to NSIA Banque Côte d’Ivoire. At the regional level, IFC helped the West Indian Ocean Cable Company (WIOCC), a telecom infrastructure provider, to expand and improve affordable internet connectivity to over 30 countries in Africa with a US$20 million loan.

The economic damage from the crisis is expected to be severe in sub-Saharan Africa, which has won early praise for shielding itself from the worst of the health emergency, though case numbers continue to rise in many of the region’s countries.

“African countries have so far avoided the worst of the COVID-19 health crisis, though their economies, many heavily dependent on commodity exports, are especially vulnerable to a protracted global economic downturn,” said IFC Regional Industry Director for the Middle East and Africa, Manuel Reyes-Retana. “IFC’s emergency support in the region, in partnership with some of the region’s largest banks, will help keep businesses solvent and maintain jobs across vital sectors including health, transport, agribusiness, and manufacturing.”

Helping the Middle East and North Africa weather the storm

Along with a mounting health crisis, the pandemic has had a devastating impact on the economies of the Middle East and North Africa (MENA). Almost every country in the region is expected to fall into recession in 2020, aggravating long-standing problems like unemployment and poverty.

In Egypt, IFC has deployed trade finance through the fast-track COVID-19 facility to help businesses import necessary commodities such as food and manufacturing inputs.

“This is just the beginning of IFC’s response to the coronavirus in MENA,” says IFC Regional Director for the Middle East and North Africa, Beatrice Maser. “We are working with clients across several sectors, including construction, agribusiness, and pharmaceuticals, to help them navigate the impacts of COVID-19. We’re also tailoring our advisory services to support new opportunities in the digital economy, which will be crucial to the region’s recovery and its future.”

As the response unfolds, it will be key for the public and private sector to work together .

“Fresh thinking is now needed more than ever before, striking the right balance between scaling up and achieving impact. The Government of Egypt supports SMEs as it is macro-relevant, a key component in developing an inclusive growth agenda, creating jobs, diversifying the economy and supporting recovery. Through our partnership with IFC, we are creating an enabling environment through a comprehensive approach which includes financing as well as advisory services to ensure sustainable growth within this segment,” said Egypt’s Minister of International Cooperation, H.E. Dr. Rania Al Mashat.

Acting swiftly in Asia and the Pacific

Countries in East Asia were the first to be impacted by COVID-19. As soon as the effects were felt in Vietnam, IFC acted to expand trade-financing limits for four banks even before the fast-track COVID-19 facility was established, and the increased total limit of US$294 million enabled these banks to support local importers and exporters. Among those benefiting was DaKao Production Ltd., a local women-owned agribusiness company. The import financing provided by the Vietnamese bank, TPBank, gave DaKao the required liquidity to import raw cashews and maintain production, preserving jobs for its 400 employees.

This initial COVID-19 response subsequently led to IFC investing around US$1 billion across Asia and the Pacific through the fast-track facility to support trade flows and preserve jobs.

Helping SMEs keep their doors open and sustain jobs was a key rationale behind IFC’s decision to provide a financing package of US75 million to Phu My Hung Development Corporation in Vietnam through the fast-track COVID-19 facility. An established real estate developer supplying affordable housing and leasing commercial space to over 300 businesses, the corporation is using IFC’s support to extend financial relief to its clients.

“Supporting businesses in times of crisis is crucial, since they are the main drivers of employment in emerging economies,” said IFC Regional Director for East Asia and the Pacific, Vivek Pathak . “With the latest forecasts showing the East Asia and Pacific region is expected to grow by only 0.9 per cent in 2020–the lowest rate since 1967–IFC is continuing to work across the region to help spur economic activity.”

The slowdown across Asia and the Pacific was led by a sharp decline of economic activity in larger markets and a tightening of financial conditions have caused market stress in some countries.

Furthermore, global containment measures amplified the impact on economies through a collapse in tourism, plunging trade, disruptions to global value chains and reduced export demand.

In South Asian nations like India, Pakistan and Bangladesh, COVID-19 continues to exact a toll on people and businesses. South Asia could experience its worst economic performance in 40 years, reversing decades of gains in poverty reduction. Of the estimated 115 million more people who could be pushed into extreme poverty this year, just under half live in South Asia. Capital outflows have increased dramatically. IFC helped SMEs affected by the pandemic in Bangladesh through a US$30-million loan to The City Bank Limited, a leading private commercial bank.

“IFC played a strong role in strengthening the foreign currency financing ability and offshore banking business of The City Bank,” saAdditional Managing Director of The City Bank, Sheikh Mohammad Maroof,. “We believe that the COVID-19 Working Capital Solutions fund has further strengthened our ability to meet our customers’ foreign currency financing requirements in this pandemic where we have experienced contraction in foreign currency liquidity outside Bangladesh.”

In South Asia, IFC has received calls for support from a range of industries, including financial services, health and pharmaceuticals, agribusiness and infrastructure. IFC helped Mymensingh Agro Limited, a company within the PRAN Group, expand its capacity to manufacture affordable and quality food products with a US$25 million investment–a move that is helping the company preserve jobs and economic activity through the value chain, especially sourcing from local farmers.

In Sri Lanka, IFC has provided a US$50 million loan to Commercial Bank of Ceylon (ComBank) to help expand lending to SMEs, with more than half of the financing dedicated to businesses owned by women.

“Small and medium-sized businesses are the backbone of the Sri Lankan economy so it’s important to act now to help these businesses get through this challenging time,” said Mengistu Alemayehu, IFC’s Regional Director for South Asia. “We’ve also committed support for companies in India and Bangladesh and are working to do even more to help mitigate the impacts of the pandemic.”

In India, IFC helped DCM Shriram Limited mitigate supply-chain disruptions, protect jobs, and boost resilience in real sector markets affected by COVID-19 with a US$40 million loan.

IFC has also been sharing knowledge and advice with companies, institutions and governments across Asia and the Pacific to help them gain a clearer understanding of the impacts of the pandemic. In Fiji, IFC has worked with the government to assess the fallout on SMEs hit by the halt of tourism, and is also working with pension funds and other funds across the region to analyze the impacts of COVID-19.

Protecting jobs in Latin America and the Caribbean

In Latin America and the Caribbean, large segments of the population are suffering tremendous hardships, and the latest estimates from the World Bank indicate that the expected economic contractions will trigger a sharp increase in the region’s poverty rate. IFC’s fast-track facility has committed US$1.2 billion to help support the private sector amid this challenging operating environment.Many households already survive on day-to-day earnings and do not have the resources to cope with the lockdowns and quarantines that are being deployed to contain the spread of the pandemic. A large proportion of workers are self-employed, and informality is common even among wage earners. Remittances, which provide an important source of income and represent a social safety net for many families, are expected to suffer the sharpest drop globally with a projected 19.3 per cent decline in 2020.

“The short-term focus right now is to cushion the blow of the pandemic on the livelihoods of millions of people in the region. We want to help companies stay in business so their employees can keep their jobs,” said Regional Industry Head for Financial Institutions in Latin America and the Caribbean, Allen Forlemu. “That is why we are providing support to financial institutions so they can continue lending to SMEs, which h are the region’s main source of jobs and engines of economic activity,” said Forlemu.

As part of its initial response, IFC helped to expand access to finance for SMEs, including women-owned businesses, through a US$100 million loan to support Banco Daycoval, a leading mid-sized Brazilian bank. IFC also approved a loan to help strength Agrofértil, a key agribusiness company in Paraguay. This investment will help the agribusiness sector, which is critical to the country’s economy, face the impacts of the pandemic.

“Helping economies to accelerate their recovery process will require working closely with our clients, while supporting countries in the region prepare projects that can attract more private investment will be equally important. Effective collaboration between the private and public sector is now more crucial than ever for our region,” Forlemu said.

Sustaining business in Europe and Central Asia

When the pandemic arrived in Western Europe, it was clear Europe and Central Asia (ECA) would be hit hard. The close trade and financial links of Central and Eastern Europe made ECA one of the most affected regions in the world. When COVID-19 hit, the Turkish economy was recovering from the currency crisis of 2018. Companies have long been struggling to increase their access to financing. The pandemic has made the situation worse for Turkish firms.

IFC is helping micro, small and medium-sized enterprises (MSMEs) weather the effects of the pandemic through a US$50 million senior loan to Turkey’s Garanti BBVA. A long-time IFC client, Garanti BBVA is using the funding to lend to Turkish MSMEs so that they can continue to operate and sustain their current employment levels.

In Ukraine, the gross domestic product is expected to decrease by 7.2 per cent in 2020, according to the IMF. The depth of the contraction will depend on the duration of the pandemic, progress on implementing pending reforms, and the ability to mobilize adequate financing to meet sizable repayment needs.

IFC helped a leading agricultural producer in Ukraine finance its working capital to limit potential input supply-chain disruptions in meat production due to the pandemic, thereby supporting domestic food security.

“We work with our diverse clients in the region to help them where it is needed most,” said IFC Director for ECA, Wiebke Schloemer. “Whether we support Turkish MSMEs’ access to finance so they can keep their business afloat, or ensure that Ukrainian agricultural clients have enough working capital to continue operations, thus contributing to food security of Ukraine, we want to ensure that companies can stay in business, preserve jobs and continue to contribute to the economy in this unprecedented crisis.”

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