THE International Finance Corporation (IFC) will invest US$25 million ($2.3 billion) in Dominican Republic-based Banco BHD, helping the bank expand operations and support lending to small and medium-size enterprises (SMEs).

The subordinated loan will be provided through the IFC Capitalisation Fund, a fund managed by IFC Asset Management Company. It will provide BHD with Tier II capital under local regulatory requirements, said the IFC.

BHD expects to be able to leverage the loan resulting in at least US$100 million in new loans to help Dominican-based businesses grow and create new jobs, particularly in the SME segment, which constitutes approximately 30 per cent of GDP and 90 per cent of all the companies in the Dominican Republic.

“In 2003, Banco BHD was the first institution to issue Tier 2 capital in the Dominican Republic and the first banking institution to receive financing from IFC,” said Luis Molina Achecar, chairman of BHD Bank. “

BHD is now the first institution in the Caribbean to receive an investment from the IFC Capitalisation Fund. We are grateful for IFC’s recognition of the strength of our business model as well as the opportunity to expand lending to businesses in the Dominican Republic,” he said.

IFC Capitalization Fund is a global equity and subordinated debt fund founded by the IFC and the Japan Bank for International Cooperation. It invests in banks considered vital to the financial system of emerging-market countries.

IFC’s relationship with Banco BHD began in 2003 and, since then, has engaged with Banco BHD in three investments and one advisory project, including an equity participation in its holding company, Centro Financiero BHD.

“Banco BHD is one of IFC’s most important clients in the Caribbean,” according to Jean Philip Prosper, IFC’s director for Latin America and the Caribbean. “By supporting it with subordinated debt, IFC will boost the bank’s capital, allowing it to grow into additional market segments, most specifically the under-banked micro, small, and medium-enterprise sector, which will benefit those persons at the bottom of the pyramid and improve access to finance in the country.”

The investment is aligned with the World Bank and IFC’s Country Partnership Strategy in the Dominican Republic, which aims to strengthen linkages with existing clients by supporting their sustainability and enhancing their access to finance. It is also aligned with IFC’s Caribbean strategy to promote economic development through crisis response and financial inclusion.

“The investment provides a unique opportunity to partner with BHD, a leading Dominican Republic bank, via the use of an innovative product that will help position the bank for future growth,” said Marcos Brujis, Head of the IFC Capitalisation Fund.

Over the last three years, IFC invested $638 million in the Caribbean. In 2011 alone, IFC created over 28,000 jobs in the region and reached more than 130,000 patients, 2,300 students, and 4 million customers through power generation.