Government has unveiled another project to be funded through the Guyana REDD+ Investment Fund (GRIF) with a budget of US$10M over four years for the Micro and Small Enterprise Develop-ment project.
The Inter-American Development Bank (IDB) will be the ‘partner entity’ for this project which will be implemented by the Ministry of Tourism, Industry and Commerce according to a draft project profile posted on the newly-established GRIF website. The project encompasses two phases with the first phase running from 2012 to 2013 and the other from 2014 to 2015.
“The GOG (Government of Guyana) has identified the development of small and micro enterprises (MSEs) and providing alternative livelihoods to vulnerable groups as a key component of the LCDS to receive funding through the GRIF. In particular, it aims to address two of the major bottlenecks that constrain the development of MSEs and the ability of vulnerable groups to build alternative livelihoods in Guyana, which are i) limited access to finance and ii) limited technical and business skills. It will also strengthen the Small Business Bureau, which will administer the project components,” says the project profile.
“By facilitating the expansion of the business development support sector along a low carbon path, the GoG aims to provide economic opportunities to some of the most marginalized groups in Guyana, while promoting self-sufficiency, sustainable business initiatives and working closely with the private sector in a sustainable manner.”
The document noted that start-ups, small and micro enterprises (MSEs) and vulnerable groups all carry a high degree of lending risk, “given the economic reality in which they operate and a market failure known as asymmetric information.” It says that due to the high cost of obtaining adequate loan feasibility information and distinguishing between good and bad loans within these economic groups, lending institutions are often hesitant to provide loans to MSEs and vulnerable groups, or will add a high risk premium to their standard rate of interest and to their standard security and collateral criteria.
“As a result, MSEs and vulnerable groups in Guyana with feasible business development proposals are not always able to access the finance they need to grow or to enter a new economic activity. In addition, many MSEs, vulnerable groups and potential entrepreneurs lack the skills and training necessary to develop and implement their business proposition successfully,” it says.
Addressing bottlenecks
Phase 1 aims to address two of the major bottlenecks that constrain the development of MSEs and the ability of vulnerable groups to build alternative livelihoods in Guyana. Access to finance will be addressed through two mechanisms: a mutual guarantee fund that is used to guarantee part of the collateral of a loan, thereby enabling an MSE to obtain a loan at an affordable rate; and a low carbon grant scheme to assist vulnerable persons with viable business propositions. Lack of skills will be addressed through a training voucher scheme which will enable MSEs to obtain the skills they require at existing training institutions.
The Mutual Guarantee fund will comprise two facilities: a Collateral Guarantee Facility which will guarantee a certain percentage of the debt for loans across all sectors of the economy, as long as they are low carbon sectors and an Interest Payments Support Facility which will help the MSE pay-off a percentage of its interest obligations on the loan, and will target key low carbon sectors that have been identified in the LCDS as being the basis for new economy including aquaculture, fruit and vegetable farming and agro-processing, sustainable forestry, sustainable mining, eco-tourism and business process outsourcing. This capital allocated to this facility will be smaller than the allocation for the collateral guarantee facility, the document says.
Low Carbon Grant Scheme
The Low Carbon Grant Scheme, meanwhile, is a pool of money that will be set aside to assist vulnerable persons to access financing for their existing or potential business venture. Those eligible will be persons who are already operating a business and require additional financing.
Access to skills will be addressed through a skills voucher system whereby MSEs and vulnerable groups with sound business propositions in low carbon sectors are provided with training vouchers (grants) which can be only exchanged for the training enrolment they need at appropriate training institutions, such as IPED, Empretec, Business Schools or the University of Guyana. Training will be targeted towards strategic skills such as business management and marketing skills, financial management skills, and technical skills in key low carbon sectors or key transition sectors such as sustainable mining and sustainable forestry. The major advantage of a voucher scheme is that it ensures that the skills development is demand driven, the document says.
In addition, the project will consider post-2012 the development of an “Innovation Incubator Hub,” which will enable MSEs to quickly develop and become competitive through networking and providing access to sources of funds, media exposure, and a knowledge centre, the project profile says. “It will also consider the establishment of MSE Business Centre to support the start up of small businesses through advisory and technical assistance, confidential business counseling, and support in development of business plans and financial projections,” it said.
This project may also provide support for existing programmes targeting vulnerable groups.
The financial mechanism for implementing the project will be the Small Business Development Fund (SBDF), which is mandated for in the Small Business Act of 2004, but is yet to be established. The document noted that the mandate of the SBDF includes providing for access to finance for small businesses, and non-financial services and assistance to help small businesses improve productivity and competitiveness. The implementation of the project components will be the responsibility of the Ministry of Tourism, Industry and Commerce.
Risks
In relation to risks, the document says that limited national institutional capacity for climate change activities and REDD+ activities may pose a risk to the timely implementation of this project. This risk will be mitigated through the strengthening of institutional capacity at the Small Business Bureau and Council. In addition, the limited institutional capacities for project management could also pose a risk to the effective implementation of this project. “Projects run the risk of facing delays due to inadequate advance planning, unclear accountability and inconsistent project control,” it says. To address these risks, the Ministry will be strengthened through recruitment of experienced project managers and will implement a project management control system that institutionalizes advance planning, clarifies accountability, and creates tight control processes, and ensures that project managers are able to achieve target results on time.
The document says that given the nature of the project as support for access to microfinance and skills development for MSEs and vulnerable groups, it is classified as a Category “C” operation because the project will not directly generate negative environmental and social impacts.
The proposed timetable for preparing this investment grant includes approval of the Draft Investment Grant Proposal by January 30, 2012 and the approval of the Investment Grant Proposal by the Board on February 28, 2012.
The total amount required for the project and to be financed by GRIF over four years is US$10M.
Under the Guyana-Norway partnership, in which Oslo has committed to pay up to US$250 million by 2015 for Guyana’s performance on limiting greenhouse gas emissions from deforestation and forest degradation, and for progress made against governance-related indicators, the partners had set up the GRIF as the financial mechanism through which funds would flow from Norway to Guyana.
