DFC partners with USAID/Brazil to seal a landmark $45 million loan to Sofisa

November, 2022 - The U.S. International Development Finance Corporation (DFC) and Banco Sofisa announced a 5-year loan program valued at$45 million,  for small and medium-sized enterprises (SMEs) in Brazil. Banco Sofisa will prioritize loans to SMEs operating in the Amazon with at least 30% of the loan proceeds allocated in the region. 

The transaction was created with the support of USAID/Brazil and BH26, a boutique investment firm. We interviewed James Cashman, Director of Global Transactions at the DFC’s Mission Transaction Unit to find out more.

How did the partnership with Sofisa develop?
We worked with USAID/Brazil previously for the Amazon Biodiversity Fund (ABF) guarantee, which was our first transaction  with USAID/Brazil, and our second is with Banco Sofisa.
The mission transaction unit at DFC, was formerly USAID’s development credit authority. Historically it only provided guarantees for partners, like what we did with ABF,but in this case, the bank wasn’t looking for a guarantee. They were looking for capital they could use to make loans to small and medium enterprises they worked with. It is the very first loan our unit at DFC has made. USAID/Brazil is leading the way in helping us expand our portfolio.

How is Amazon being prioritized?
As part of the transaction, Sofisa agreed to expand their portfolio to SMEs operating in the Legal Amazon.It is one of the requirements in our loan agreement.
Those businesses do not need to be impact oriented necessarily, but within our agreement we also have specific requirements and limits for the use of resources. Our view is that by operating within these states that have lower access to capital, they can be very impactful in terms of job creation and other economic benefits just by the nature of operating there.
This is one of the things we are going to learn as we work with Sofisa now, what sorts of companies they are able to identify that are going to meet the bank’s criteria, and  advance what we are trying to do here as DFC and USAID in the region.

The agreement with Bank Sofisa is part of USAID’s Private Sector Engagement Strategy. Why is it important to work on development issues with the private sector?
We have the same mandate at DFC, so all the work that we do has to be connected to the private sector. We don’t provide any funding directly to governments, we do it through the private sector. And the primary reason for that is the leverage that you get operating though the private sector. There is a limited budget for governments to accomplish goals, whatever those goals might be in terms of addressing inequality, poverty issues, climate issues, etc. Governments only have a finite level of resources and just trying to operate and achieve developmental goals exclusively through the public sector you are missing a big part of the resources and contribute to the solution that the private sector offers.

What is the importance of working with local partners?
Local partners are absolutely critical here. We have very limited insight as to what the challenges are in the legal Amazon, in Brazil for example. Is the same way for our private sector partners. A large multinational bank is only going to have a limited perspective on how the economy functions in any given country. So working with local partners gives us all of that insight, all of that expertise, all of the local knowledge that is essential to make these sustainable projects.

What are DFC’s assessments for Brazil?
The program is a great example of the strength of the new organization at DFC. Because it is giving us additional tools we can be use when a guarantee isn’t the right instrument, as was the case with Sofisa. But even beyond the Mission Transaction Department there is broad interest from the part of DFC to be able to support projects in Brazil, particularly expanding our portfolio in areas related to addressing climate change. And so, partnering with USAID and the rest of the teams in the ground here in Brazil is going to continue to be a big part of our portfolio’s growth in the country.
I will just talk about how wonderful it has been to work with USAID Brazil. It is a small team, covering a vast portfolio and they have been incredibly innovative in trying to figure out how DFC can fit in with the mandate that they have in conserving biodiversity.

Learn more about the partnership here.