FMO backs Paraguay ag bank with $15m loan

Alvaro Pino, investment officer at the Dutch development bank, tells Agri Investor that DFIs and impact investors remain the main source of capital for all but the largest participants in the South American nation’s agricultural economy.

Dutch development bank FMO has extended a $15 million loan to Banco Para la Comercializacion y la Produccion, a bank owned by a coalition of 28 cooperatives active in Paraguay’s agriculture, cattle and agribusiness sectors.

The loan is designed to spur job creation by supporting financings from Bancorp to small- and medium-sized enterprises active in the country’s ag economy.

Founded in 2012, Bancorp has provided $345 million in loans to more than 11,000 clients, 35 percent of which are involved with primary agricultural production. In addition, 13 percent of Bancorp’s clients work in the cattle industry, 11 percent are involved in agricultural trade and 9 percent work in agribusiness.

“This financing will allow Bancorp to increase long-tenor loans to its SME clients, further strengthening its continuous support to agriculture and cattle sectors which are major drivers of the Paraguayan economy,” Bancorp director and chief executive Dimas Ayala said.

FMO investment officer Alvaro Pino told Agri Investor in an email that the loan to Bancorp is typical of those the DFI offers to financial institutions. Pino wrote that the senior term loan with semi-annual interest and capital payments of an undisclosed size is on a seven-year term.

Pino wrote that in the loan agreement, Bancorp also committed to taking steps to improve its risk-management standards and apply stricter evaluation and credit-approval criteria.

“Banks/FIs in Paraguay rely largely on DFIs and other impact investors to access long-tenor financing to provide loans for capital investments to their clients, together with good access to correspondent banks for trade-related financing,” Pino wrote. “In the agri space, only very large players are able to attract this kind of funding, in combination with some private funds activity.”

In August, independent advisor and portfolio manager Innovatus Capital Partners extended a $10 million loan to Agrofertil, a crop input distributor in Paraguay that FMO provided a $10 million loan to in late 2016. Later that month, Latitude 20 Capital Partners, a New York-headquartered specialty finance firm, extended an $8 million loan to Compania Dekalpar, another inputs-focused agribusiness in Paraguay.

At the time, Latitude 20 founding partner and portfolio manager Eimaad Ahmed told Agri Investor that, despite the need for financing across Latin America’s export sectors, foreign banks have retreated and many private lenders continue to view the region’s SMEs as unsophisticated.

“It could be, maybe, that the investors are looking for unrealistic risk-adjusted return,” Ahmed explained. “If someone is looking for LIBOR plus 15 in the agribusiness space in LatAm, you’re not going to get something like that.”

On Thursday, Agri Investor sister publication Private Debt Investor reported that Latitude 20 has secured a $250 million investment from Corrum Capital Management, a private investment firm with offices in Charlotte, North Carolina and San Francisco. According to Latitude 20 chief operating officer Jason Bross, the capital will allow the firm to increase its largest loans from $15 million to $25 million.