INFAESTRUCTURE

Not long ago, only the fourth part of the Mexican municipalities used credits to finance their public works; and in the less developed places, the situation was even less optimistic. However, today this scenario looks a lot better.

Not long ago, Mexican municipalities had a restricted access to credit. Why? Besides the lack of a credit culture and the high costs of origination fees, there was a low capacity to take steps toward the necessary local authorizations, not enough federal participation to be used as a source of payment, and a need for a portfolio of relevant infrastructure projects.

As a result, at the end of 2006, only 25% of Mexican municipalities used credit to finance their infrastructure projects, and this coverage was even smaller for less developed municipalities in the country.

It was necessary to attend the municipal credit market and the development banking was to give the first step. For this reason, the National Works and Public Services Bank (Banobras) designed the Banobras-FAIS program, which uses the Social Infrastructure Contributions Fund (FAIS) as a source of payment. This federal fund is addressed mainly to the development of basic infrastructure and is given to the states and municipalities through ten transferences between February and November of each year.

FAIS CHARACTERISTICS

• Maximum amounts of credits are set for each municipality according to the corresponding FAIS resources.
• Credits have a maximum term of 3 years, which fits the municipal administration periods.
• Credits have a fixed interest rate, mainly to provide security to municipalities with regard to monthly payments; to use up to the 25% of the FAIS established by law as a source of payment, and to provide municipalities with a coverage in the event of volatility in the financial markets.
• As part of the program, counseling is provided for creating templates of town-council minutes for municipalities, to facilitate credit management in the city councils.
• A trust fund is created to receive all the FAIS to pay credits and deliver the remnant to municipalities through state governments.
• The program promotes a better use of the support of Federal Government to cover origination fees, represented in the initial commission of the credit. Thus, municipality only covers the interest and structuring rate.
• A training program for the local authorities was created with the Inter-American Development Bank (IDB) resources. In April 2010, workshops were performed in ten entities, with the attendance of 818 municipalities, 392 municipal presidents, and 2,945 municipal officers.

IMPACT OF THE PROGRAM
The Banobras-FAIS program promoted a credit investment of 300 million US dollars in priority sectors for development. The program enabled municipalities to boost their investments and to perform more ambitious works through the combination of resources and a better profiting of available funds.

By December 2009, it granted credits for about US$ 640 thousand to 462 municipalities, reaching small and medium municipalities. In the seven states where FAIS has operated, the mean coverage of municipalities with credit went from 20% to 41% between 2006 and 2009.

The program was particularly successful in Chiapas State, the second most deprived in Mexico. The amount financed represents more than the 30% of the total municipal investment in this state, and the coverage of municipalities assisted in this state increased considerably from 36% to 84%.

The program has also contributed to develop credit market for local infrastructure by crediting 225 municipalities for the first time.