Development banking in mexico and in the world has taken on greater relevance since the global crisis occurred at the end of the past decade. In Mexico development banking originated in the early twentieth centur y, when the Mexican government created the Banco Nacional de Obras y Servicios Públicos (Banobras), Nacional Financiera (Nafin), and the Banco Nacional […]
In Mexico development banking originated in the early twentieth centur y, when the Mexican government created the Banco Nacional de Obras y Servicios Públicos (Banobras), Nacional Financiera (Nafin), and the Banco Nacional de Comercio Exterior (Bancomext), among others. Among the main purposes of development banks are the promotion and encouragement of the economic develop-ment in sectors and regions with scarce resources, large capital needs, or public sector priority projects.
The current development banking sectors in Mexico include mainly National Credit Institutions and Economic Devel-opment Public Trusts. Banobras, Nafin, Bancomex t, Banco Nacional del Ejercito, Fuerza Aérea y Armada (Banjercito), Banco Nacional de Ahorro y Ser vicios Financieros (Bansefi), and Sociedad Hipotecaria Federal (SHF ) are National Credit Institutions. Various trusts and funds such as Agriculture-Related Trusts (Fideicomisos Relacionados con la Agricultura or FIR A) and the Capitalization and Invest-ment Fund for the Rural Sector (Fondo de Capitalización e Inversión del Sector Rural or FOCIR) are Economic Development Public Trusts, whereas Financiera Rural is a decentralized public entity.
Under the applicable law, especially the Organic Law of the Federal Public Administration, the development bank-ing sector is managed by the Ministr y of Finance and Public Credit (the SHCP, for its Spanish acronym), which has divided it into the following sectors: rural sector, industrial sector, and ser vices sector. Development banking in Mexico and in the world has taken on greater relevance since the global crisis occurred at the end of the past decade. As a consequence of the lack liquidit y in the market, the govern-ments, through the development banking institutions, have been forced to allocate resources to the infrastructure projects required for the development of the nations. Without the par ticipation of the development banking institutions, such proj-ects would not be able to procure funds for their development, mainly because of the above mentioned lack of liquidit y. Moreover, the development banking sec-tor plays a major role in the at traction and placement of resources from international organizations that promote development, such as the World Bank and the Inter-American Development Bank.
Within the ser vices sector, Banobras is the entit y that is most linked with municipal projects, since par t of its purpose is the financing or refinancing of public or private investment projects in infrastructure and utilities, as well as the invigoration of all three levels of government, es-pecially the municipal one. Banobras, in par ticular, of fers financing to the municipalities for such projects as street paving, electrification, sanitar y sewer and storm drain systems, water, and municipal buildings, among others. There are programs such as the Banobras-FAISM (Suppor t Fund for the Municipal Social Infrastructure, Fund 3 Branch 3 3), through which Banobras lends to the municipalities up to 2 5% of the amount they are entitled to from the above mentioned fund. Additionally, the municipali-ties may concurrently finance such projects with state or federal funds.
Also, Banobras of fers financing even to municipalities that do not have a credit rating and are not eligible for commercial banking loans, at a more af fordable rate (TIIE + 1 at 4%) and in terms adjusted to the borrower ’s repayment capability. The only requirement is to fill out the “Evolución de las Finanzas” and “Saldo de la Deuda” forms, relating to some basic financial information.
Please note that the process takes around three months, so it is advisable, even elected mayors, to evaluate any available options reasonably in advance. These financing options offer many advantages to municipalities, since, from very early in the administration term, they can have the liquidity needed for carrying out infrastructure and utilities projects that are crucial for the development of the municipalities. They can obtain such credit lines at much lower rates than those offered by the commercial banks and have access to Banobras’s advice to evaluate and prioritize their projects.
In another area of the development banking sector, Nafin has a Production Chain Program whereby a state or a municipality can have quick access to resourc-es needed to star t a project without having to pay for the cost of financing. The program operates through an electronic factoring system that discounts invoices on an automated basis, working with private banking institutions and relying on Nafin’s guarantee. The municipalities are at tracted to this program because they can star t a project several months pri-or to the date when they will have access to the funds, without leaving the contractors lacking liquid-it y to cover the project ’s costs.
There are other programs of the development banking sector that have an impact at the mu-nicipal level. One example of this is SHF ’s program of Integrated Sustainable Urban Developments (DUIS, for its Spanish acronym). DUIS are integrated-planning development areas that contribute to state and municipalit y land-use planning while promoting orderly, fair, and sustainable urban development. DUIS include Joint Proj-ects of federal, state, and municipal involvement as well as the par ticipation of real estate devel-opers that may join such projects.
The Group for the Promo-tion and Evaluation of Integrated Sustainable Urban Developments (the GPEDUIS) grants those DUIS-cer tified projects a package of technical and financial support. The GPEDUIS comprises the Min-istr y of Economy (SE), Ministry of Energy (SENER), Ministr y of Social Development (SEDESOL), Ministr y of the Environment and Natural Resources (SEMARNAT), the National Housing Commission (CONAVI), SHF, Banobras, the Na-tional workers’ Housing Fund In-stitute (INFONAVIT), the Housing Fund of the Social Securit y and Services for the State Workers Institute (FOVISSSTE), and the National Fund for Tourism Development (FONATUR). It is impor tant to note that most of the state laws of private-public partnerships and the federal Law of Private-Public Partnerships provide alternatives for the combined par ticipation of private equit y, development banks, and State funding, as in the case of the National Infrastructure Fund (Fonadin), managed by Banobras.
Such projects may combine State resources (e.g., Fonadin), funds from the development banking sector and private equit y through private-public associations. It is impor tant for the municipalities as well as for their contractors to get acquainted with the various programs of fered by the Mexican development banking sector so that they can include them in their projects and/or generate new development opportunities for the municipalities and new business for developers. These programs benefit all the parties involved, and the implementation costs are not significant compared to their benefits.
Gustavo Alarcón has over 10 years of experience as a lawyer at renowned law firms in Mexico and the United States. He is a senior associate in the Firm’s Banking and Finance Practice Group in the Mexico City and Monterrey offices. He has extensive experience in domestic and cross-border credit transactions, capital markets, project financing and financial regulatory matters. Mr. Alarcon also taught Legal Theory at the Universidad Autónoma de Nuevo León from January 2003 to May 2004.
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