#DevTalks: Banking on Colombia’s Development – Innovation and Growth at Bancoldex

DISCLAIMER: This webinar transcript was loosely edited and there may be inaccuracies.

Alejandro Rueda SansI have the honor, of introducing to you, Javier Diaz. CEO of Bancoldex. I have the honor of working with him for two years before I came here to HKS. And now today, we have the pleasure of seeing him present on, the amazing work the bank has done for Colombia and bringing in some very new and innovative ideas, about how public development bank development banks should work. So, during his time at the bank, Javier has boosted the bank’s growth $3 billion. And transformed the entity’s business model from the second tier bank to one that provides direct credit to Colombian companies with an emphasis on innovation, sustainability and digital transformation. The bank has navigated some very important changes, during this time, which, of course we would present it. So without further ado. Welcome to DevTalks. Welcome to Harvard. And we’re honored to have you here. Look forward to your presentation.

Javier Díaz Fajardo All throughout this morning, I’ve had conversations with Alejandro, with colleagues from Colombia that actually pick your brain and you get to thinking, what should a public development bank do? So I laid out here and my bank colleagues in Colombia who I thank for this, were actually extremely helpful. So what is it that we should be doing? So first of all, we’re in the business of financing, and we cannot forget that we have to build a loan portfolio and it has to be a healthy loan portfolio. Sometimes when you’re in the development world you tend to forget that. And it’s very important. You have to you have to grow and you have to keep your non-performing loans low. Easier said than done. It’s quite a task to actually put these loans out there and make sure you get repaid. But you do that because you’re serving a purpose. And then if you look at this graph, you have to you have to consider innovation, development, new channels. What should we be doing that either the commercial banks are not doing or that we should be doing complementing what they do. So typically when you talk about development banks, you tend to think about market failures. I’ve been discussing this with Alejandro since yesterday. The market failure terminology has to be reevaluated. It used to be the fact that a public bank was only good for what the private bank wasn’t doing. And it’s much more complex than that. We need to be collaborating. We need to change the terminology. We need to be collecting. We need to be innovating. We’re probably commercial banks are doing something else. So this conversation is has been enticing on many ways. But one of those at least, is what we should be doing on a different scale. And then we’re all about sustainable development goals. I recently had to speak on a different forum, and I realized, or the metric is out there. Only 15% of SDGs are on the right track towards 2030.

And if you think about it, it’s. It’s pretty dramatic that this there’s this Paris agreement started out in 2015. We’re halfway there. Almost past the halfway mark. And we’re not. We’re not getting there. So we have to bring up new ideas. We have to harness the power of the public development banks. Now, on the other hand, I was recently at a different forum in corporate America. And the Paris Agreement, at least in their minds, is very much alive. So people have faith in this, and you can think simply that it’s not going to happen or that we’re doomed. It would sound like we’re doomed. But on the other hand, we have the tools to do much more. We also need a strategic focus on particular sectors. And I’m going to show you a different slide that that kind of portrays some banks or for agriculture. Some banks have a general mandate. Some banks are for SMEs, like in the case of bank colleagues. But we need to have a pretty important focus. And then time and time and again you will hear we need to do and we need to provide not just money, because money will only take us so far in the small world, in the development world. And I think in life generally, you need more than just resources. You need technical assistance. Most of the companies that we work with come back and say, great, thanks for the loan, but when can I get assistance on developing a new product? When can I get assistance on. Sometimes even basic accounting. So this whole blend is what probably makes the magic of a development bank work. Now getting down to the real world of what we do at Bancoldex my again, my colleagues in in Colombia prepared this slide and I thank them for it. This kind of shows you the different mandates that a public development bank might have.

So there’s of course, the generalists. And, and let me cite some examples here, which you may or may not be familiar with. bndes. Bndes is the Brazilian development bank, and they’re huge. I think their balance sheet is close to 100 billion USD. You’ve got multilateral like gov. I think the, the premier public development banks of the world are K of W and AfD the French agency for development. So when the smaller of us look up to the bigger brothers, that’s K of W, K of W was in charge of the postwar reconstruction of Germany. And it’s probably now the second or third largest factor in Germany. But it’s been around to serve a purpose. It’s reconstruction. And now they do quite a bit of work overseas. So those are the guys you kind of look up to. Then there’s some that are focused just on infrastructure. In Colombia we have two cousins for an infant there. And as you continue up the graph, you’ll see in Mexico, for example, you’ll see that some banks were meant for foreign trade and bank called X which who whom I’ll talk about in a minute. Bancoldex started out as simply foreign trade back in the early 90s. And over the course of three decades, we have morphed into something that looks more like nothing in Mexico. So I think the people who were at the helm back then realize that if we were going to continue just to do foreign trade, we would be out of business. So we stepped into microfinance and more recently when stepped in to direct AC Milan. And I’ll talk about that in a little while.

So part of what I would also like for you to take away is the fact that these development banks and generally institutions have to evolve. You have to understand the times you’re living in. You have to understand how to actually read the client, read the needs. And you can’t just stick to your original mandate. If you just stick to something. You’ll probably end up out of business. And that, I think, applies to any industry. And then you come to one called X. We put it at the top of the graph. Our business is micro small and medium enterprises. And I’ll tell you what we’re doing in that field. But before I get to Bancoldex, let me just on a different note, tell you of a number of very nice initiatives that are actually happening around the world. And in no particular order, green bonds. Green bonds have been around for quite a while, but at least in Colombia. Bank, called the Public Development Bank for SMEs, was actually the pioneer. We were the first issuer of green bonds in 2017, which sounds like a long time ago, but it isn’t. We did green bonds initially in the local market, then we’ve done a number of social bonds, and social for us is mostly micro. Making sure that micro entrepreneurs micro-businesses actually get these small loans. Is is is the reason why you issue social bonds and you find yourselves. But there’s also a number of very interesting initiatives out there. For example, the wildlife conservation bonds that were structured by the World Bank. There’s this a beautiful conservation project in Africa, which actually provides a sophisticated financial architecture to make sure that a particular population is being preserved.

And then there’s already blue bonds. I think Indonesia issued blue bonds in the Japanese market. But the next wave of labeled bonds you’re going to see is probably going to go blue. I don’t think the green is ever going to go away and shouldn’t, but you’re going to see these things evolving from the green to the social to the blue. So there’s I think there’s a lot of hope in the capital markets. And too many actors nowadays will only buy bonds if they’re labeled. That doesn’t mean that you’re getting a discount. And we can talk about that how in practice there’s there’s a big gap between what you actually think you can achieve price wise with the green bond and then what you actually get on the pricing day. But that’s financial architecture. Before we get to that, a lot of hope into the into the bonds that are being issued. And this is just to remind you that the idea of SEO or International Development Finance Club is a coalition of public involvement banks.

Now, why is it important to have a coalition, you would say? Is it just another club? Is it just to ring out studies or what are we here for? I think this time around we’re thinking about things differently, and we may be issuing bonds in the capital markets as a club, or at least between some of us that can actually benefit from the better investment grade of agencies, such as gave W or U of T, get the cheaper lending, I’m sorry, cheaper funding and then lend, much, much cheaper to those who actually need it. The difference in the cost of capital between those who have the better rating and those who don’t, is at least ten percentage points. Which goes back to the to the tried and true question. Why is it that those who have actually get the better rating and those who actually need it get get the lowest or the highest cost of capital, the lowest opportunity? So we’re trying to bridge that at the idea of, see, we’re working on making this issuance happen. We expect to go to market this year. And at the same time we do a number of technical assistance. We’re having a tremendously, positive, training on greenhouse gas accounting next, early May in Bogota. You’re invited if any of you are going to be in Bogota, Colombia for that. So having a club of development finance institutions is actually for a purpose. We need to lower the cost of capital for those who actually need it the most. And let me turn to a different initiative. Which is the Green Coalition. But before I get to that, I’m going to say something that may sound harsh, but it’s probably true. As we saw, the Latin American neighborhood hasn’t been performing that well. And there’s many reasons for that. Bad policies. Money that wasn’t that well spent. We can we could talk forever about why Latin America hasn’t progressed the way it has. But on the other hand, the eyes of the world are currently on the region because of the Amazon rainforest. So it’s almost shameful to say that the world is waking up to Latin America. Because the Amazon sits at the heart of our region. And in order to make the best of this, and in order to actually come up with good policies that actually protect the Amazon, the Inter-American development Bank, Bndes, they came up with the Green Coalition. Bancoldex has secured a place here. We are now the vice chair of this coalition. And this is again, in my mind, one of the better initiatives that you can be thinking about, which is how to protect the lungs of the world that are sitting in our region and actually make the best of that with very, very clear risk factors. I think the Amazon has lost at least 5 or 10% of its, of its rainforest over the past decades, and that is lost because of illegal mining. Illegal trading. There’s a lot of illegality going on in the Latin American neighborhood. It’s not just drugs. I mean, drugs make up a great part of it. But you can add again, mining, you can add many, many, many, many things that go around the illegal trading. And we need to protect that. It’s not easy, but we have to come up with better policies and ideas to actually make sure it’s not just the Amazon, it’s the people and everything around it. And then finally, I’ll probably spend a few minutes on Colombia and open up to questions.

So what does this mean for us? In Colombia, we have four development banks. Some people might say it’s probably too many. There’s five if you count bank radio. But we take care of different segments. So if you now bank audio, take care of the agriculture and the rural Ftnd is all about infrastructure that that was designed to lend to subnational. And it actually does quite, quite a great job at that. And then world, we’re all about micro small and medium enterprises. This is probably a bit too much information, but during Covid our role was actually proven because before then, before we had such a big crisis. People used to think, well, why do you need five development banks? Why are you around for so-and-so reason? What are you actually doing? When Covid hit, we mobilized over 1 billion USD to micro, small and medium enterprises. Some of that was subsidized. Some of it wasn’t. But I think we really played out our role when the pandemic hit. Now again, we’re aligned with the SDGs and making good of the world. But let me in my in my last few minutes get to something that I find which is very interesting. So. Part of what we do is not just lending to these enterprises, but we think about innovative ways in which we can change realities. And my colleagues and I at the bank, probably five years ago decided that we had to come up with something for better microfinance. Microfinance has been around for decades. Actually, I think the microfinance story in Colombia is quite successful. A lot of people who had never had access to credit, or even now, who actually would have to go to the street in very dangerous conditions, actually have access to microfinance. But there’s at least three problems with microfinance still. One, rates are too high. So the funding rate for any microfinance institution in Colombia legally is between 30 to 50%. Now you’re all financial people here. What is your. If your cost of capital is 50 or so percent, what is your return? How much do you need to be making? There’s huge inefficiencies there. So high. Too high, rates. There’s too little access. And there’s a huge asymmetry of information between the client and what the microfinance institution does. So only if you’re lucky. Do you actually get credit. So what we came up with is this B2C platform in which any micro entrepreneur in Colombia can actually register and ask for credit. So this is I don’t know if this is the best example or not, but think of the lending tree of microfinance. Anybody has and should have access to finance, but now we’re doing it in a technological way. So any anybody can register, anybody can ask for a small loan. And the way this works is we have 27 financial allies at the other side of the platform who are waiting to provide competitive offers on that particular microfinance loan.

So what we did as a development bank was put the whole system in place. We registered the people. It’s open to registration. I hope you actually go into the thing because it’s quite nice. And we also set up. Not initially. It wasn’t 27. It was eight. Now we have 27 banks and fintech companies competing for this loans. And what we’ve seen if you look at the screen is. Almost 70% of loans that have been mobilized actually get more than one offer. Now this was unthinkable not too far away. When would you think that a microfinance individual, a small business, very, very small business could actually be getting competitive offers for their business? We’ve now done that 22% of access is credit for the first time, 44% for women. And we’ve actually seen rates go down. Now this is incipient. This is just starting. We’ve mobilized roughly $2 million. It’s only been around for two years. But the nice thing about it is it works. And I think this is part of the moral of the story. Wherever you work, and especially if you work at a public development bank, what you need to be doing is pushing the envelope, always thinking about how you can do something better. And I think that’s what industry does generally. But when you’re talking about development, when you’re talking about public finance, this is what you really need to be doing. Focusing on technological solutions that will actually reach the people who need them and who have been left out of the system for too long. So that’s the micro story, I’m sorry, the story of microfinance. No credit. So I’ll probably stop there because I really want to get, to interact with you. But just to sum it up. Wherever you go. Consider the power of public development banks. Great institutions. Been around for a while and we’re actually renovating our mandate and doing things in a different way. Think about the fact that wherever you come from, Colombia, other nationalities, there’s always something that isn’t working right. And if you go back to the beginning of this presentation. It’s sad, but in many ways things are not improving. Going. We’re going back in time. And that’s why you come to tragedies such as the forced migration we’re having throughout the Latin American region. People willing to risk everything just to survive or to have a better lifestyle. So thank you for that. And, I’ll be very happy to answer your questions.

Alejandro Rueda Sans Thank you very much. Thank you so much for this wonderful presentation. It was really, really interesting to see how, I mean, how the bank has evolved. I mean, especially having been an and an insider, during, like the first years and just, looking at this evolution is very, something extremely thrilling, and, and very laudable, for, for, for what the bank has done. So, right now we’ll take, questions for those of you who are online, please feel free to type them in the zoom chat and we’ll take them, as they come in. And then perhaps I’ll kick off, starting with one question. I mean, given that we’re an academic institution and some of us are economists, and perhaps we think of banking and market failures in a very fair, in a very theoretical way. How is that useful? Or at least, how can those be crystallized in practice? Or should those be crystallized in practice by public development banks?

Javier Díaz Fajardo So the thing about public development banks is we get regulated the same way that any commercial bank would. So Basel three applies to us. We get superb supervision in the case of Colombia from the Superintendency of Finance, and everything that we do is actually measured as if we were funded commercially and lending commercially. And in a way we do that. But on the other hand, we are expected to have impact. And I’ve been discussing with Alejandro and other colleagues here at Harvard this morning the fact that maybe we should be getting different KPIs and measuring more impact than more financial return. Now, mind you, our financial return is not that extraordinary. But it has to be positive because otherwise you’re just going to go into bankruptcy and nobody wants that, especially in a bank. So to answer your question, Alejandro, and again, hopefully get more interaction on that, maybe we need a different set of KPIs. Maybe we need to be suggesting on Basel guidelines, the fact that a different category for development Bank should be included. And we definitely need to be thinking about larger support from governments who are parents of these banks. It may come in the form of guarantees. Mr. Hausmann was talking about the callable capital that the MDGs of the world have, which is very, very interesting. Only 2.5% of those paid in capital at the Inter-American development Bank. Everything else is callable, but it relies on the faith and credit of the United States and other big actors. So I think there’s a number of ways in which public development banks need to be doing more, how that needs to be measured more in terms of impact than in terms of financial return. But before we get there and in the real world, and I’m hoping my colleagues in Bogota are seeing this, we are reminded every day that we’re back. And we have to put those domes out there, and we have to grow the lawn portfolio, and we have to keep our NPOs low. So this is an interesting conversation, among other reasons, because it has to bridge what we should be doing and what we actually do in practice. And we’re not there yet. The aspirational is still out there. We need we need to get to that realm. But in the meantime, our preoccupations in what we do are very mundane. We have to make sure that that loan portfolio grows, our assets grow. And I think we’ve achieved that over the past five years. The milestone 3 billion USD that we surpassed about a year and a half ago was extremely important, because if you’re a bank and you don’t grow your balance sheet, then you’re really not performing as a bank. But then you and in our case, you have to be you have to measure your impact in terms of social, development and how many SMEs that you reach and so forth. And then if you bring in the Covid element, well, that that’s tried and true. So I’ll probably sum it up, Alejandro, in saying that we are short of laboratories. We need to be thinking about better ways of doing things. How to reach those who have been left out forever. In the meantime, we can’t lose money. And a different alternative is should they really be banks? Maybe they should be agencies. And there are agencies around the world that do all these good things, but they’re not measured as banks. But that’s a bit technical, so I’ll probably stop there in terms of saying that, yes, we need to be doing other things and being measured differently.

Alejandro Rueda Sans Fantastic. Thank you. Let’s see. So we have one question from the crowd, please.

Speaker 3 On this measuring framework. I’ve always had that dilemma between people can that can generate for their work for example, that might not be the ones that need the credit the most versus people who might have lower skill funding needs that might not generate as much employment. So how do you choose between who to allocate the grants to and how to guarantee that they have the greatest impact, possibly within the society.

Javier Díaz Fajardo That’s a great question, and I’ll try and tie the answer to a program which is under way in Colombia, and I’ll use it the Spanish terminology economic populaire, which is financed for the common people, if you will. I guess first thing is related to the way you phrase the question. You don’t actually get to pick and choose. What you try and do is as you as you put credit out there, and you make sure that it reaches everybody in an equitable conditions, but you don’t really have the privilege of picking and choosing who gets credit. I would start off by that. And then the second thing you have to know is in order to reach people who have been left out, at least credit wise, you probably have to start with a very, very large amount of subsidies, and subsidies are scarce. So it’s actually an interesting thing, what the government is doing, which is putting out their loans that have, 12 months of, of tenure, which is actually a very, very low tenor. You get guarantees from a different government entity, a repayment guarantee. So up to 70% of your loan is guaranteed by another institution. And then if you pay in time, I think it’s the first 7 or 8 capital installments, then you get one free installment and the rate is actually below the funding rate. Now, in order to achieve that kind of magic, again, you need a huge subsidy. And that’s what the government has embarked on. It’s let’s get money out there and has to be productive credit. It’s not consumer credit. So let’s get the money out there and let’s get the thing flowing. But on the other hand, do you have the the ticket and the subsidies to actually make good on that? Well, it’s starting out and it’s still very early to say whether it’s successful or not, but it’s, it’s I think it’s a very bold move on the, on the part of this government in Colombia and any government for that matter, to actually be putting these types of credits out there. Now, the bigger question is what happens after that? So you got your credit one year, and maybe you were you were, you were lucky and you paid on time. You didn’t have to access the government guarantee. But then what does that mean? That you’re now in the formal credit system? Maybe. Maybe not. Does that mean that you need technical assistance? Probably, yes.

You probably need much more in order to get you rolling. Because remember, these have been people who have been left out of the system forever. So I guess to sum it up, you need to put everything out there. You need not you need the subsidies. You need instruments like the public development banks, but you also need technical assistance. You need a lot of things to actually make good on the promise that people who have been left out can actually have a better future.

Speaker 3 Thank you so much for, giving this talk. I’m very curious. You mentioned three problems which the PDBs are still facing. Especially on the cost of capital front. Exactly how can a PDP solve for a cost of capital problem, both in Latin America and especially In Africa as well?

Javier Díaz Fajardo Okay. So, I’ll try and make it simple. The traditional terminology in terms of credit ratings, actually drives a wedge between those who are investment grade and those who are not. And you can take any scale. You can take Moody’s, you can take it, and B, you can take Fitch. There comes a point in the scale where you are either investment grade or you’re not. And I think that is pretty odious. And I think that, in a way, is is a self-fulfilling prophecy in which you’re actually excluding more people than you should. So what happens is if you’re not investment, great, your cost of capital gets actually shot up dramatically. And then getting out of the either non-investment grade or junk, as it’s called elsewhere, is actually hard, and it takes a lot of time. In the case of Colombia, we we lost the investment grade, I think it was back in the year 2001, and it took about ten years to recover. And then we were investment grade up until 2021, and we haven’t been investment grade since. And it’s just sad to think that it’s going to take another 7 or 8 years to get it back. That shouldn’t be the way things are. So how does that relate to the cost of capital? If you’re a subnational or you’re a public development bank and you’re sitting in the neighborhood that is not investment grade, your cost of capital gets dramatically shot up. So you may do. You may be doing everything right. But if you’re in the wrong neighborhood, then your cost of capital is not going to improve. But on the other hand, you also want to think, are we doomed to that? And we probably shouldn’t. So this ties into the idea that I was discussing before, which is if we’re in a society, global society, and a club in which the better credit can actually provide a guarantee or actually lever upon the lower credit, then the lower credit actually needs, we should be able to bridge the difference between its insanely high cost of capital and the benefit that it can get from a bigger brother. In a way, that’s the philosophy of the world Bank. The world Bank has the lowest cost of funding possible around. And it funds itself low, and then it charges very little to the other countries, and it charges a bit more to the bigger countries. But we need to be doing that not only at the world Bank level. At the practical level, we need to be having issuances out there all the time that combine the better balance sheet and the not so good balance sheet. So I’m hoping that answers the question. It’s all about more collaboration between the haves and the have nots.

Speaker 3 Okay. So I think public, development banks are a pretty interesting figure as you’re regulated by the government, but you have to. Be credible for private institutions. And so you’re all the time in a middle ground. You’re exposed to political cycles, and you have to align those private interests with the public, agenda. So I wanted to ask you, how do you do this and what are the main lessons that you have learned along the way in fulfilling this mission?

Javier Díaz Fajardo It’s a big question, I guess, to start tackling from any angle. One of the bigger lessons learned is you need good corporate governance. And I think in Colombia we have a lot of that. And in the case of bank colleagues, we’ve been around for 32 years, which is probably eight presidents, maybe nine. And I can tell you and I can guarantee that now. And in the past, Bancoldex has not been a politicized entity.

We serve the cause of the micro, small and medium enterprises that we serve. So if you have good corporate governance, then you can you can make sure that you’re focusing on what you have to do and not unpleasing X or Y individual. So I would start by saying that the good corporate governance is at the heart of these institutions. And then balancing everything else is that it’s a balancing act. It’s more art and science. In the end, you are regulated as, as we’ve been discussing by, by the typical rules. So yeah, every year is a challenge. And Alejandro can attest to this. Every year at the bank we have a budget. We have a balanced scorecard that actually, it applies equally to everyone, to to all individuals who work at Bancoldex. And that’s how we measure our, variable remuneration. So we either get a bonus or we don’t if we meet very stringent metrics. And I would also add that that is key because it’s different when you get your bonus based on the fact that your boss likes or doesn’t like. Here. We have a system. It’s laid out every year. It’s a big discussion with the board. So the last quarter of any year in Bancoldex is spent on preparing the budget, preparing the balanced scorecard, discussing it with the board, taking into account what they say. And then we have to start every year fresh. And we do we start tired in a way from that discussion. But we start fresh. And every year brings its own metrics and its own challenges. The not so good part of that is that we go on a year to year basis, and only so often do we think about the big picture. So we probably should be thinking more about the big picture. But again, to sum it up, it’s good corporate governance. Which in a way leaves you aside from the political cycle. And then again, just having good systems in place.

Speaker 3 Thank you for your presentation. It was very interesting. I have two questions. The first is how do you think the government should decide how much money to put or not in the development bank? I am from Brazil and there’s a lot of criticism about the money that’s put in behind this because of the opportunity cost that you could put in education or you could pay your public debt. So I’m curious to know what your thoughts are about how to decide where, to what degree the government should invest or not. And also related to last question, I’m curious to know to what degree you think that the public banks should be aligned or not to the government agenda, or they should be more focus on long term things? And a second question is more related. I was just reading yesterday the Mariana Mazzucato, a paper on mission oriented development banks, and she talks about the idea of like having the development banks focus on specific outcomes that they have can be like, for example, having 100 carbon neutral cities in Colombia, and you have this mission and you bring all the different sectors to solve that. I’m curious to know if what’s your thoughts on this mission oriented approach, and what are the main challenges in terms of measuring outcomes in terms of impact and not only financial numbers?

Javier Díaz Fajardo I thought you from Spain because you’re bringing the interest in. Okay. So how much money should the government put into its public development banks? I’ll talk about bonds in a few moments, but I think it’s not just about putting in equity. It’s about providing guarantees and other types of supports to your public development bank. So combine equity, the right amount of subsidies because you need to subsidize credit. And the example I was posing when you when you want to provide credit to people who have been left out of the system. It’s highly, highly subsidized. And it has to be. But then if you’re going to be providing loans to large corporates, then it probably doesn’t need a subsidy. So you need to get the blend right. What how much subsidy goes into each segment. and then. Let me talk about bonds just because I’ve interacted with colleagues there, and I think they’re all wonderful. But BNDES over time amassed a very large asset side of the balance sheet. And in the process they have, they have finance, the aerospace industry, they finance other industries. So I think the good about pouring a lot of money into a public development bank, or maybe too much money, is the fact that you build a big balance sheet and you actually achieve great achievements. On the other hand, that has required tremendous amount of subsidies. That has made BNDES, the owner on the books of many publicly traded equities. And you have to. And BNDES has a return on equity that at one point was as high as 30%. Now it’s probably lower than that.

But then you have to wonder why? Why would you expect such a high return on equity from a public development bank? There’s inefficiencies in the process. And by all means, I’m not I’m not badmouthing Bndes or the Brazilian government by any means. What I’m trying to say is that there’s always a quid pro quo if you put in money, and again, money and resources are scarce, then you have to target it, right, so that it reaches what you need to do in the end. But you can’t overdo it. And I think over time, maybe in the case of BNDES you have the good and the great, which is size. But then on the other hand, why are you holding public equities on a little rest quite a bit tighter, as if it’s still around. Why should that be in the balance sheet of a public development bank? Probably shouldn’t. So I think to your point, which is very fair, you probably need to get the right amount of subsidies and equity and guarantees, but you want to make sure that the multiplier effect is as high as possible. Because what we do, at least among colleagues, is we bring in private money. Everything that we do is private money. It’s funded by the private sector, and it’s the right amount of public subsidies that actually allow us to continue our mandate. I think in this point in time, in bank colleagues, we need more subsidies. Doesn’t mean we have to fill ourselves with subsidies, but we need more subsidies at this particular point. So I guess that would that would tackle the first question. And I’m sorry, I forgot your second question.

Speaker 3 Related to the idea of mission oriented machinery. Yes. Okay. So and it ties beautifully into the first question. Oh, it’s great to talk about mission oriented. It’s I mean, it’s something we all want, but then in the real world, we’re banks. And how do we achieve that? So in a way, it’s the same question. It’s the objective. It’s the mission. And I think we can all agree on that. But on the other hand, when you think about the nuts and bolts and how we achieve that, you have to go back to lowering the cost of capital and bringing in the right blend of government help. So it’s what I would dare to say is it’s not just about the mission oriented. It’s all about how you achieve that with the right government support.

Alejandro Rueda Sans Great. And I think we have time for one more question. From the audience.

Speaker 3 Thank you so much for the presentation. I am Isabella, I’m from Peru, and I am super interested in the impact investing field. One trend that I saw happening right now in sub-Saharan Africa is, some potential alliances between DfID and impact investing firms. So I was curious about like, what’s your vision on the impact investing firm and potential alliances like happening in the Latin American region?

Javier Díaz Fajardo The short answer is there’s not enough going on in Latin America on impact investing. So, that’s the short answer. The longer answer is goes back to the cost of capital. If you’re partnering with someone. What you need to do is to get that help or subsidy or whatever you want to call it, and blending it into a better rate. Now, when you do that, you have to ask for additionality and then measure what you’re actually accomplishing. So stated differently. We should be doing more of that. I think I think Africa is doing is doing a much better job in impact investing. That’s on the lending side, on the equity side, which is something the public banks also do. I think our story is smaller in numbers, but much more interesting in terms of impact. So let me cite a few examples in in Colombia and what we’ve done at Caltex. It’s hard to say. But over the past five years Colombia has been riddled with crises. Of course, state Covid. But then we have we have two small islands on the Caribbean, and they were struck by two hurricanes within a week. So not just one two hurricanes and one of the islands was even though it’s a small island and only one casualty. It was it was almost obliterated. My colleagues and I went there, I think three days after the second hurricane had passed, and it was literally as if they had dropped a bomb on the whole island, because when you take the hurricane effect in the south, it just kills everything. Everything that is green all of a sudden is brown and barren.

So when we got there, we decided, okay, what are we going to do besides the humanitarian? And we set out an impact investing fund. This is equity. And it’s not even equity. It’s quasi equity. It’s a very simple form of saying to a person who used to own a small hotel. I’ll give you this money, and let’s just make sure that you return the capital, not even an interest. And we do it. Any particular point in time. But, I think that sort of impact investing when you’re dealing with crises is something we have done well, we just need to do it on a permanent basis. But to do that on a permanent basis and not expect a financial return the way you should. You actually need for someone to cover that because again, go back to the point where if you’re a bank, you need to be showing results on a yearly basis. You need to be growing. So again, not enough impact investing going on. We need to be doing more of that. But I think on the other hand, I think the large corporates and the investment world is actually realizing this. It’s realizing the potential that us, the Ifis, have. So even though we’re not doing enough, I would see a brighter future for that.

Alejandro Rueda Sans Fantastic. And perhaps we have a couple of minutes to take one of the online questions. There’s been a few trickling in. I’m going to take this one which asks, about the lending landscape change in Latin America, given, the new influx of funds not only coming from the United States, from Europe, but now from China. And they cite here the case of China signing recently occurrences with our agreement with Argentina. How has that looked for in Colombia? How have how is Chinese capital changing the landscape of funding in Colombia?

Javier Díaz Fajardo Not in Colombia. I think, I think for, for historic and other reasons, Argentina has been much closer to China and Japan historically. Colombia, shamefully was close to immigration for the most part of the of the 20th century. And that’s a shame, because we probably missed out on a lot of great migration that we could have had. So I can’t speak for Argentina. I haven’t studied enough about the currency swap and so forth. But the bigger picture is China is out there and it’s a multipolar world. And I, I say this with a little bit of sadness. We’ve been overlooked, in a way, by the US and in a way by Europe. So if you’re overlooked and other people come and fill the void, then then this happens. Which is probably not a bad thing either. If you get a good currency swap, then.

Probably needed, then go for it. But on the other hand, it does show you that. Whether it’s China or whether it’s other actors, we need to be open to other actors. As an example, closer to home, Bogota, the city where I think you come from as well. We’re getting our first metro built. It’s taken forever. It’s taken decades to actually materialize. And the construction company is Chinese. I have no opinion on the fact that they’re Chinese. They could be Belgian. It doesn’t matter. But it comes to show that the one who won the bid, and the one willing to take certain risks where the Chinese at the moment. And so be it. Same thing, maybe for the currency swap in Argentina. I just I just think we need to we need to fill in the funding gaps wherever they come from. And I think we’ve been overlooked. So maybe other regions will, will, wake up and come back to this.

Alejandro Rueda Sans Fantastic. Oh, yeah. It has been an absolute honor to have you here at HKS. Thank you so much for making it over here. Thanks, everyone, for attending. Please, find our your, boxed meal outside on your way out. Sadly, we couldn’t be here in the classroom. But please join me in giving Javier a huge round of applause.