State of São Paulo to Boost Sustainability of Municipalities and MSMEs with IDB Loan

The Inter-American Development Bank (IBD) approved a $110 million loan to the Desenvolve São Paulo development agency in Brazil to finance the sustainable projects of municipalities and micro, small, and medium-sized enterprises (MSMEs) in the state of São Paulo. The operation aims to helps close infrastructure financing gaps and stimulate a sustainable economic recovery that in the country.

Half the loan's resources will go to 53 municipalities to shore up their public infrastructure according to high sustainability and climate resilience standards. The municipalities will implement energy efficiency projects - like retrofitting street lighting with LEDs and generating electric power from renewable sources like photovoltaic panels - as well as alternative mobility projects like bike lanes, pedestrian walkways, and low-carbon vehicles.

The rest of the resources are earmarked for approximately 850 businesses, most of which are located in the most vulnerable areas of the state of São Paulo or are led by women or people of African descent. In this way, the project invests in regions and segments that have substantial financing needs but are not always served by traditional lenders.

Over the medium and long term, the project is expected to drive sustainable development in the State of São Paulo by creating more jobs and revenue and lowering greenhouse gas emissions.

In broad terms, the program will help the state of São Paulo expand sustainable investments in key areas like social inclusion and climate change mitigation by bolstering municipalities and the productive sector. These actions align with the State of São Paulo's 2021-2022 Recovery Plan, which seeks to attract domestic and foreign investment to all areas of the state and emphasizes sustainable infrastructure. They are also in line with Desenvolve SP's 2022-2026 Strategic Plan.

The $110 million IDB loan has a 25-year term, with a 5.5-year grace period and an interest rate based on the Secured Overnight Financing Rate (SOFR). The New Development Bank (NDB) will also contribute up to $90 million in parallel financing for the program. These resources will be implemented according to NDB's policies and procedures.

This initiative is part of a broader partnership between the IDB and Desenvolve SP. In March, the IDB approved $195 million loan for this development agency to invest in MSME innovation and productivity initiatives. The two institutions partnered to produce a framework for sustainable financing, which they published this month. The IDB and Desenvolve São Paulo also developed a tool for calculating the carbon footprint of operations financed by Desenvolve SP, expanding the range of solutions to help businesses and local governments respond to climate change.

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