By Jacquelyn Hamer
Jacquelyn Hamer is a retired Guyanese diplomat and a director of the skills training organization Visions of Excellence.
It would be a commendable thing if the established private sector were to show more interest in the development of small business in Guyana since there are clear benefits to be derived from a thriving small business sector for ‘big business.’ The evidence of this has long been apparent in the retail and distribution sectors where manufacturers and distributors of locally produced and imported goods depend heavily on the smaller operators to ‘move’ their goods to the retail market. One of the more interesting of such relationships is that which exists between manufacturers and distributors in the clothing, accessories, soft drink and confectionary businesses and the small shopkeepers, vendors and flat foot hustlers who move their goods to that retail market. Recently, I happened upon a large distributor of imported products the extent of whose trading relationship with small businesses surprised me. In fact, I would venture to suggest that in excess of 20 per cent of his sales goes to and through the small business sector.
I believe that most of the lending institutions in Guyana have missed a trick as far as their disposition to lending to the small and micro sectors are concerned. I know a bit about the psychology of lending that informs the outlook of commercial banks and while I accept that their first priority has to be to protect the interests of their depositors I believe that the attitude to lending to small businesses may not have been thought through as carefully as it ought to be.
The Institute of Private Enterprise Development (IPED) makes that point more elegantly than any other lending institution in Guyana. Here is an example of a local lending institution which, like commercial banks also has investor interests to protect but which, for several years, have embraced small businesses down to the level of street vendors and have made a handsome profit doing do. Just recently, I saw a copy of the 2009 IPED Annual Report and it makes interesting reading. Its Chairman, a hard-nosed Guyanese businessman – not a small business operator, mind you – continues to believe that there can, after all, be a mutually beneficial relationship between lending institutions and small business operators. Last year, for example, IPED’s total interest income reached $330m, a sure sign that it boasts large numbers of responsible borrowers many of whom have had long-standing relationships with IPED. The previous year, 2008 IPED’s interest income totalled $245m.
All this is based on a lending portfolio that reflects a clear and distinct targeting of small businesses. The 2009 Report says, for example, that “micro loan represents 2,878 clients which amounts to more than half of its total borrowers “ and the real giveaway is that “more than 1,000 of the institution’s borrowers access loans of less than $100,000,” small amounts by business standards but enough for the kinds of small hustles that help hundreds of families stave off abject poverty. I concede that IPED runs a business and that there are conditionalities attached to lending but you have to admit that if those 2,878 micro clients did not have an IPED to turn to life would surely be that much more difficult for perhaps four or five times that number of people.
The other significant thing about IPED is that over time it has expanded its reach into all of the country’s ten administrative regions a sure sign that it is not backing away from engaging the small man seeking to make a living in one business pursuit or the other.
I hasten to make the point that I am by no means engaging in running down the commercial banks for the caution which they have exercised in their lending policy. In fact the point should be made that – particularly in recent years – the commercial banking system as a whole appears to have seen the light and have been promoting lending ‘products’ that are more accessible to ordinary people including small business hopefuls. Some of these have even been accompanied by support in the preparation of business plans and some measure of support and advice in the planning and running of business ventures. IPED of course, has been doing these things for several years and that puts them well ahead of the banking sector.
Much, of course, is wrong with an economy which depends so heavily on agriculture in a situation where commercial banks have had a particular aversion to lending to the sector. Again, there are reasons including the high risks associated with lending to that sector associated with issues of weather and flooding and the high probability that some farming ventures might fail. Additionally, there is also the problem of a high level of lack of business experience among some persons engaged in farming. They have simply stuck to the tradition of growing and selling and in many instances take little account of some of the various other challenges associated with farming. That is why several of our farmers have, over the years, tended to experience of what I call the pendulum phenomenon, swinging continually from one extreme of success to the other extreme of abject failure. That will inevitably happen since, in the absence of an effective managerial and technical knowledge of farming pursuits, initiatives cannot always depend on the hit consideration in what effectively becomes a pursuit of hit or miss.
I have said before that the potential which farming possesses to make a difference between poverty and plenty is awesome but we are yet to get it right. Again, IPED has stepped up to the plate, and, if the truth be told, runs the kind of ‘risks’ in the agricultural sector which other lending institutions have simply not been prepared to do: and they have done so in the absence of the various risk management mechanisms like crop insurance which have recently been introduced on both the national and regional farming agendas. One finds it difficult to imagine, for example, that in the particular sub-sector of agriculture described as “other crops” IPED holds 66.1% of the lending market share. The same figures from “rice/paddy” and “livestock” are 28.4% and 15%, respectively. I have no axes to grind for IPED but you cannot ignore those numbers.
In a sense I understand Mr. Yesu Persaud’s openly expressed frustration over the pedestrian pace at which the provisions of the 2004 Small Business Act is being implemented and I have, myself, made this point in a previous column. What is clear is that when the structures provided for in the Small Business Act kick in, one of the likely outcomes is likely to be a better-structured small business sector that would be attended by more effective institutional monitoring and, equally importantly, a regime of support in the
planning, setting up and management of small businesses. Obviously, a better-organized small business system will engender enhanced lender confidence and that will make life easier for institutions like IPED and even encourage more liberal lending policies to the small business sector by the commercial banking sector.
The government, it seems, for whatever reason, will not be rushed on the issue of the Small Business Act though it has to be said that more than four years after the National Assembly passed it into law the issue of rushing is no longer relevant. That, however, is another story. The real purpose of this column is to shine a light on the role that IPED has played in supporting the survival of the small business sector and, by extension, in providing an option for those of its clients whom, in its absence, would probably have been leading far worse than subsistence lives. That, of course, does not include those whose lives have been salvaged by overseas remittances.
Due to considerations of space we are unable to publish either the regular Rawle Lucas column or the Lucas Index this week.