INDUSTRIAL DEVELOPMENT FUND (FDI-HAITI)
Long term loan rediscount

 

What is rediscount?

 

Rediscount is a loan granted by FDI to a Financial Intermediary, which commits itself, by contract, to use the proceeds to make one or several sub-loans to one or several investment enterprises called « Final Beneficiaries ».

 

What are the cost and the maturity of a rediscount for the Financial Intermediary?

 

A rediscount is remunerated from a portion of the nominal interest rate on the sub-loan(s). In accordance with FDI’s « Declaration of Statement of Policy and Procedures », the interest rate on the rediscount cannot be less than 4/10 of the interest rate on the sub-loan(s) made by the Financial Intermediary out of the proceeds of the rediscount. Actually, most of the FDI’s rediscounts are remunerated at 6/10 of the Financial Intermediary’s interest rate on the sub-loan(s). 

 

Like other FDI’s loans, the maximum maturity of a rediscount is the least of 18 years, including a 3-year grace period, and the agreed upon maturity of the Financial Intermediary’s sub-loan(s). In other words, FDI’s rediscount is amortized pari-passu with the sub-loan(s).

 

What are the advantages and the limits of the rediscount for the Financial Intermediary?

 

For the Financial Intermediary (FI), FDI’s rediscount is a liquidity and interest risk reducer. It is a liquidity risk reducer, in the sense that it is reimbursed in accordance with the schedule of payment of the sub-loan(s). This arrangement makes the rediscount a maturity-hedging instrument for the Financial Intermediary.

 

It is an interest rate risk reducer for the FI, in the sense that its remuneration depends on the interest rate of the sub-loan. The variability of the remuneration of the rediscount makes this FDI’s product a margin stabilizer for the FI, in a context of interest rate volatility.

 

However, FDI’s rediscount is not a credit risk reducer, because the reimbursement is not conditioned by the solvency of the Final Beneficiaries.  In fact, even if the schedule of payment of the rediscount is established in accordance with that of the sub-loan, the Financial Intermediary (FI) remains liable for the full payment of the rediscount, whatever the final recovery rate of the sub-loan(s).

 

 What is the maximum amount of an FDI’s rediscount?

 

There is no regulatory ceiling for the amount of rediscount to be granted to a Financial Intermediary. But FDI’s rediscount cannot exceed 90% or USD 750,000 of the financial intermediary’s sub-loan to each final beneficiary

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