MX Rural Finance Development Structural Adjustment Loan

closed

Closed

The objective of the Rural Finance Development Structural Adjustment Loan Project is to support an important stage of the reform of Mexico's development banking sector. Specifically, this loan supports the liquidation of Banrural and the creation, in its place, of the new Rural Finance Institution (FR), as a non-banking decentralized institution that cannot mobilize deposits or issue debt and that is in charge of promoting the development of rural financial markets. The FR is funded directly through budgetary allocations; it must maintain the value of its capital endowment in real terms, report periodically to Congress, lend only to low and middle income rural producers, and move, over time, fully to second-tier lending. The proposed loan will be disbursed in three tranches. Conditions for tranche disbursements have been designed to be closely linked to building a financially viable rural finance institution (FR). A first tranche supports: (i) approval of the FR's Charter, and the budgetary appropriations for the liquidation of Banrural and the establishment of the FR; (ii) establishment of the FR's management structure, corporate governance, normative guidelines and regional organization; and (iii) adoption of strategic decisions that affect the initial operations of the FR and its financial viability. A second tranche supports: (i) adoption of a Strategic Plan including the shift to second-tier lending and the design of an integrated management information system and financial control system; (iii) adoption of new credit manuals and processes consistent with FR's financial viability. A third tranche supports confirmation that the FR complies with: (i) the objective of maintaining net income levels in real terms equal or higher than zero, for any consecutive six-month period within the preceding nine months; and (ii) its lending normative and CNBV's prudential regulations, including norms for risk classification and provisioning of loan portfolio.

FY17 - Financial Sector

World Bank Group

Project

Commercial, Government