Guyana Bank for Trade and Industry (GBTI) Chief Executive Officer John Tracey’s presentation at last Monday’s Agricultural Risk and Insurance Symposium organized by the Ministry of Agriculture in collaboration with the World Bank and the Inter-American Institute for Cooperation on Agriculture (IICA) could, in time, come to be seen as a landmark declaration on a long-sought closer relationship between commercial banks and the local agricultural sector. That will of course depend on the outcome of Mr. Tracey’s promised review – on behalf of the Bankers’ Association – of the banks’ investment policies in the agricultural sector and whether or not whatever emerges is sufficient to take to the next level the spark of optimism that would have been created in that sector by what Mr. Tracey had to say.
It is no secret that the commercial banking community’s response to recent initiatives by government, driven by the President to encourage a ‘kinder’ culture of lending to and investment in the agricultural sector has been met with a lukewarm response. In his address Mr. Tracey conceded the caution on the part of commercial banks, proffering data that reflects a sharp decline in bank financing for the sector in recent years. Specifically, he noted that bank financing for agriculture dipped sharply from $8.7 billion in 2000 to $3.9 billion last year while lending to the farmers dropped from $5.7 billion in 2000 to $1.1 billion in 2008; and while agriculture accounted for 16 per cent of total bank financing in 2000 that figure plunged to 6.1 per cent last year. These are not statistics that reflect an incremental confidence in the banking community in the agricultural sector.
Mr. Tracey attributed the banks’ declining enthusiasm for lending to the agricultural sector to a number of factors including lack of efficiency in the use of water, low productivity and the inability of the sector to realize economies of scale. He cited too the low return on agricultural investment and the necessity for longer-term bank financing. Continuing in this vein he said that poor infrastructure, the slow pace of both the introduction of contemporary farming techniques and adaptation to changing demand have also contributed to banks’ lack of enthusiasm for investing in agriculture.
All this, of course, amounts to saying that the banks have frequently found farmers not to be good businessmen and that the fact that agriculture remains the mainstay of the country’s economy does not give the sector any automatic right of access to commercial bank lending in circumstances where it remains a considerable credit risk.
Not everyone, of course, has agreed with Mr. Tracey. A senior official in the local manufacturing sector told Stabroek Business recently that he was critical of what he felt was the greater predisposition of commercial banks for lending to people whom he described as “traders,” businesses in the wholesale and retail trades which he said are of far lesser significance to the national economy than the agricultural sector. Unfortunately for our friend in the manufacturing sector, commercial banks’ decision-making on lending is informed by assessments of borrowers’ ability to repay and when one considers, particularly, the heavy losses that banks have sustained in the rice industry and the volatile sugar industry’s huge outstanding loans to the commercial banking sector it has to be said that – at least in the opinion of the banks – “traders” have proven to be much safer bets than farmers.
What appears to have triggered, at least in part, the promise by commercial banks that they would at least be prepared to re-examine their extant disposition to the agricultural sector is what they apparently believe is evidence that government is now prepared to facilitate greater efficiency in the sector both through the passage of enabling legislation and through the practical application of measures designed to treat with long-standing impediments to the efficiency of the sector, though Mr. Tracey conceded that the banks remained concerned that the Financial Institutions Act takes little if any account of small players in the agricultural sector. It may be, as well that commercial banks have come around to the view that if their operations are to make a meaningful difference to national development priorities, lending policies must reflect some measure of support for those priorities. Certainly, the banks would not have been unmindful of President Jagdeo’s aggressive advocacy of greater private sector emphasis on investment in agriculture as a response to concerns over national and regional food security arising out of high food import bills and concerns expressed by the Food and Agricultural Organization regarding an impending global food crisis.
The fact that the historically ultra-cautious, ultra-conservative commercial banking community has now agreed to revisit its disposition to lending to the agricultural sector is, taken contextually, a significant step forward since it essentially breaks a significant traditional mould. In this regard the banks may also have been encouraged by the fact of relatively recent investments in agricultural pursuits among a few investors who already had a prior track record of entrepreneurial accomplishment.
Despite the concession to a re-examination of its investment policies towards the agricultural sector, however, commercial banks, will undoubtedly evaluate what they do purely in the context of shareholders’ interests and we certainly cannot anticipate that what Mr. Tracey had to say portends a new regimen of injudicious lending. If agricultural ventures are to benefit from a more liberal lending policy they will have to provide the banks with the required assurances of their capacity to conduct their business in a manner that provides the banks with a modicum of confidence in their ability to repay their loans.
Apart from the inherent inefficiencies and vulnerabilities that have made the agricultural sector risky borrowers there is also the need to change the perception that ‘good’ farmers are frequently not good businessmen. In this regard advocacy of investment in existing agricultural ventures by both local and foreign entrepreneurs who can bring a measure of sound business practice to the sector could point the way towards an enhanced relationship between the sector and the commercial banking community. Most of the concerns alluded to by Mr. Tracey including the inability of agricultural ventures to realize economies of scale, slow adaptation to technology and poor, often non-existent marketing techniques can be remedied through the infusion of strong, orthodox business inputs. Government, of course, will have to chip in with the necessary enabling physical infrastructure and technical and scientific support that will result in more efficient, more productive and, from the banks’ perspective, more profitable farming.
After the banks have completed their promised re-examination of their policies towards the investment sector the way, presumably, will be open for an enhanced relationship with the agricultural sector. Commercial banks being what they are, however, that re-examination of lending policies will not mean that the banks will lose sight of their own bottom line. What we can expect, therefore, is that the banks’ re-examination of their lending policies will include caveats that will require responses from both the agricultural sector and from government itself and the successful evolution of the envisaged enhanced relationship between the banking and agricultural sectors will depend on whether or not there can be a meeting of minds on the required adjustments on all sides. This, too, was implicit in what Mr. Tracey had to say.