In terms of issuance, diversified payment rights (DPRs) deals have made a poor showing so far this year, with Scotiabank Peru the only originator to have hit the market.

Now there is an El Salvadoran deal as well. While small in size and funded by the International Finance Corp. (IFC) as opposed to the market, the transaction is a landmark for the evolution of this asset class on more than one front.

The issuer, Fedecredito, is selling a $30 million, seven-year private placement backed exclusively by workers' remittances to the multilateral. The last time the sector has seen a deal in the class collateralizing only the remittance portion of DPRs was in 2001, when Banco do Brasil placed a $250 million bond backed by remittances that ethnically Japanese Brazilians send to their families back home.

Since then DPR deals have included export payments and other kinds of money orders, although the deals from Central American banks typically lean heavily on remittances.

In the case of Fedecredito, there are no other kinds of DPR flows to speak of. The entity is a cooperative owned by 55 credit unions and workers' banks scattered throughout El Salvador.

"They have 150 points of service around the country, in parts of the country that banks don't even think about," said Xavier Jordan, a principal investment officer at the IFC.

The network serves 600,000 borrowers in total. These entities specialize in microfinance and cater to a poor demographic. "The cooperative focuses on mobilizing funds to the bottom of the pyramid," said Kevin Kime, senior financial officer at the IFC.

The "capillarity" of Fedecredito gives it an advantage over competitors in the remittance business, Jordan said. Salvadorans living in the U.S. - the source of nearly all the flows channeled through Fedecredito - will give their money to a remittance provider that can, in turn, fork the funds over to any number of banks in El Salvador. If the money has to be received in the capital, for instance, then the banks on the receiving end of the flows can compete for the business of the remittance provider.

"It's a dollars-and-cents business," Jordan said. "You can buy market share here." But in the case of Fedecredito, the recipients of the remittances are clients of only their local credit union or workers' bank, which can often be in a far-flung village. In those cases, and there are plenty of them in the Salvadoran countryside, Fedecredito faces no competition in the remittance business.

Indeed, the cooperative actually saw its business grow last year, whereas remittances to El Salvador dipped slightly overall. Remittances processed by Fedecredito are currently running at about $100 million a year. The cooperative entered the business in earnest in 2004. While they are equipped to capture flows from any foreign country, the U.S. is now basically the source for all of Fedecredito's remittances.

The deal marks the IFC's first straight purchase of a DPR or remittance transaction, Kime said. He added that, before the crisis, the multilateral didn't see any room for it to engage the DPR business, given the market's receptivity to these deals before the crisis.

"Now we're looking globally to do more in the area of DPRs, particularly institutions that would be off the radar of investors, in part because the deal size is too small," Kime said. Cooperatives in Africa, he added, are strong candidates for IFC involvement.

Prior to its foray into remittance-backed funding, Fedecredito was funded primarily by local banks, international development banks and the Salvadoran government's Banco Multisectorial de Inversiones.

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