Ecuador - Second Small-scale Enterprise Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3t411-EC REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$40.6 MILLION TO THE REPUBLIC OF ECUADOR FOR A SECOND SMALL SCALE ENTERPRISE CREDIT PROJECT November 15, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Ecuador devalued the sucre by 32 percent on May 13, 1982. In addi- tion to the current official exchange rate of SI. 33 = US$1, there is a free market rate applicable to the tourist trade and some capital movements. The ( free market rate at end-October 1982 was fluctuating around US$1 = S/. 59. Currency Unit: Sucre (SI.) Calendar 1981 October 31, 1982 US$1 = S/. 25 = S/. 33 S/. 1 = US$0.04 = US$0.03 S/. 1,000 = US$40.00 = US$30.30 FISCAL YEAR January 1 to December 31 ABBREVIATIONS BNF - Banco Nacional de Fomento (National Development Bank) CENAPIA - Centro Nacional de Promocion de la Pequena Industria y Artesania (National Center for Small Industry and Artisan Promotion) CFN - Corporacion Financiera Nacional (National Finance Corporation, a State-owned development finance company) COFIEC - Ecuatoriana de Desarrollo S.A., Compania Financiera (Ecuadorian Development Finance Company, the country's largest private development finance company) FOPINAR - Fondo para Pequena Industria y Artesania (CFN's Small-Scale Enterprise Loan Discount Facility) MICEI - Ministerio de Industrias, Comercio e Integracion (Ministry of Industry, Commerce and Integration) PFI - Participating Financial Intermediaries SSE - Small Scale Enterprise IDB - Inter-American Development Bank USAID - United States Agency for International Development  FOR OFFICIAL USE ONLY ECUADOR SECOND SMALL SCALE ENTERPRISE CREDIT PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Ecuador Beneficiaries: Corporacion Financiera Nacional (CFN) and eligible banks and development finance companies Amount: US$40.6 million equivalent including a capitalized front-end fee. Terms: Repayable over 17 years on a fixed amortization schedule, including 4 years of grace, at the Bank's standard variable interest rate. Relending Terms: The Central Bank, as fiscal agent, would onlend the proposed loan in sucres to CFN, the executing agency, on the same term as the Bank loan would bear, but at an interest rate of 12 percent p.a. The loan proceeds, blended with Government contributions to CFN, would be onlent to participating financial intermediaries at 13 percent interest per annum, except that the relending rate to financial intermediaries for subloans to enter- prises with assets below US$22,000 would be 9 percent per annum. The maturities of subloans provided by CFN to financial intermediaries would vary according to the individual subprojects to be financed, but would not exceed 10 years, including 3 years of grace. The Government would assume the foreign exchange risk for the loan as well as any difference between the 12 percent onlending interest rate to CFN and the Bank's standard variable interest rate. Project Description The proposed loan would continue Bank support to the and Risks: Government of Ecuador's efforts to develop further the dynamic small scale enterprise (SSE) sector which, in turn, would help generate employment, improve income distribution, and promote regional development. In order to achieve these objectives, a line of credit totalling US$55.4 million would be made available to the SSE sector. CFN would also continue to manage a program of technical assistance to SSEs, and would receive technical assistance in order to improve its financial information systems. About 1,200 subloans averaging US$45,000 are expected to be made to individual SSEs with fixed assets, excluding land and buildings, of no more than US$350,000 equivalent. Investments partially financed by these subloans are expected to create about 6,000 new jobs. Given the satisfactory performance under the first SSE credit project, no special administrative risks are foreseen. However, there is a risk that demand for investment credit may slacken somewhat due to low growth of the economy. Should this happen, the proposed loan may take longer than expected to disburse. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Costs: Local Foreign Total (US$ million)