Managing SME Investment Funds in LAC

Author:
Marie Gunning
Solana Incorporated
Latin America and Caribbean

Article:
Managing SME Investment Funds in Latin America and the Caribbean: Lessons Learned and Recommended Best Practices
A Report Submitted in Conjunction with the Multilateral Investment Fund’s (MIF)
Workshop on Small and Medium Sized Enterprise Investment Funds in LAC
Babson College Executive Education Program

Over the past decade, private investment funds have emerged as a potential new financing option for small and medium sized business enterprises (“SMEs”) in Latin America and the Caribbean (“LAC”). The Multilateral Investment Fund (“MIF”), a special fund administered by the Inter-American Development Bank, has been a prime catalyst behind piloting this new type of financing vehicle. To help track the impacts of its investment fund support, the MIF requires all investment funds in which it is a participant to be subject to periodic review by outside investment professionals. These independent monitoring evaluations provide an objective assessment of the operating aspects of each fund, and help to identify major trends common throughout the region’s nascent SME private investment market.

Drawing from the findings of monitoring evaluations conducted for the MIF and others between 1996 and 2003, this paper sets forth some of the key lessons learned to-date from the operation of various LAC- based SME investment funds. These conclusions are based upon examination of market standards for the region, as well as actual examples encountered through the independent monitoring review process. It is hoped that this summary will help fund managers, fund governance bodies and potential new fund investors enhance their SME financing activities in LAC.

In summary, the enclosed best practices paper provides insights into many of the administrative and operational issues associated with SME private investment funds in LAC. Using the findings of past fund reviews, the paper provides investment fund managers, Board members and private investors with a variety of suggested tools and strategies to advance the implementation of non-traditional private financing for small and medium sized businesses in LAC.

By SOLANA INCORPORATED *
*The principal author of this report is Marie Gunning/ Portland, Maine
mgunning@solana-inc.com