Beginning last Tuesday the International Finance Corporation (IFC) in collaboration with the governments of the Netherlands and Japan and the Canadian International Development Agency (CIDA) commenced a four-day training exercise targeting commercial banks in the region and aimed at equipping the banks to make more informed judgements on the matter of lending to small businesses. According to information released on the forum more than 18 participants from nine banking institutions in the region are participating in the exercise.
Studies of SMEs in the Caribbean have provided various estimates of just how much of the regional private sector these constitute and the best that can perhaps be said without contradiction is that small businesses contribute the vast majority of privately-run businesses in the region. More than that, regional SMEs make an important economic and social contribution to the region insofar as they not only provide significant levels of employment but often serve as a safety net for the poor and the unemployable.
Commercial banks that are participating in the training exercise in St Lucia are, in the first instance, entirely aware of the significant niche which SMEs represent in helping to build their client base and the IFC, by hosting the conference along with other bilateral and multilateral stakeholders, is seeking to create stronger relationships between SMEs which are major drivers of economic growth in the Caribbean and commercial banks which are the major sources of lending for investment.
Both in Guyana and elsewhere in the Caribbean, commercial bank aversion to lending in the small business sector has been a major issue. A critical question at the heart of this issue is whether SMEs are experiencing borrowing difficulties because of banks’ lack of confidence in the business cases that they make or whether the banks’ posture derive simply from a broader lack of trust in what are perceived, on the whole, to be fragile and unsustainable ventures, which of course mean that they do not even trouble themselves to examine their potential viability on a case-by-case basis.
Here in Guyana, lobbyists for a more flexible approach to at least examining SME lending requests before what is often believed to be rushing to judgement have caught the attention of the commercial banking sector and the upshot of this has been that most local commercial banks have, in recent years, moved to add to their portfolios lending schemes that provide a measure of access for SMEs.
This is not to say of course that commercial banks in the region and here in Guyana do not have good reason to be cautious about lending to SMEs. If SMEs are recognized as potentially valuable entities that make an important contribution to the country’s economy no comprehensive policy has been put forward for its further development save and except, to some extent, in the Small Business Act, the provisions of which are yet to be implemented after several years. There is too, no clear formal definition of what constitutes micro, small or medium enterprises except again, and again rather vaguely, in the Small Business Act. Further, while there are some agencies – like IPED – that provide lending to SMEs there is no institutional framework for facilitating the planning, a circumstance that points once again to the existence in name and little more of the Small Business Act.
Setting these aside there is the high cost of utilities and in some cases the scarcity of commercial space for SMEs, which, in Guyana’s case, are among the major impediments to growth. There are limited opportunities for training and technical assistance, for SME operators, a circumstance that has given rise to questions regarding their competence to manage sustainable enterprises and then, of course, there are, with the exception of the agricultural sector, marketing challenges associated with the lack of institutional arrangements for selling the products and services of SMEs.
If the St Lucia forum suggests that commercial banks in the region are prepared to re-examine their traditional posture towards lending to SMEs, that change is more likely to come about if the aforementioned challenges that inhibit the growth of SMEs are addressed since, the effect of addressing them is likely to be the creation of a greater measure of commercial bank preparedness to free up financing for small business development. In the case of Guyana, this is where the swift implementation of the long-delayed provisions of the Small Business Act, particularly those that speak to various forms of state support for small businesses are implemented without further delay. Commercial banks are more likely than not to be far more encouraged to entertain lending requests backed by business proposals that have already secured some official imprimatur. Otherwise, they are likely to retain a posture which they regard as their first responsibility, that is, the protection of their shareholders’ interests. The St Lucia exercise might provide just the kind of impetus that is needed to create enhanced commercial bank lending arrangements for SMEs not only in Guyana but elsewhere in the region where the difficulty exists.
