The government’s 2021 budget may well end up being a missed opportunity for expanding support and nourishing growth of Guyana’s small business sector. To emphasise this point it should be noted that some $2 billion has been appropriated to GuySuCo, a single entity, to resuscitate its viability and assure its survival. A similar sum should have been included for the Small Business Bureau (SBB) to help fulfill its mandate and, specifically, to designate at least one-half of a $2 billion allocation for financing options to be reserved for the entire small-business sector. Such significant investments would reap immeasurable rewards for both government and the country as a whole.
With many financing constraints burdening our small businesses, government should not hesitate to offer innovative financing strategies for these enterprises. In addition to more financing becoming available to the SBB for its current initiatives to assist small businesses, credit guarantee schemes should be established where government can act as an intermediary between private sector borrowers and lending institutions by guaranteeing entire or partial portions of commercial bank loans.
The availability of credit guarantees will alleviate many fears and help resolve such reservations as commercial banks may have when dealing with the small business community. The credit guarantee resolves the matter of collateral deficiencies as well as offsetting the risks of lending to small businesses and compensates for low profit margins.
Credit guarantee programmes are available in both developed and developing countries and are implemented by national governments and regional and multilateral lending institutions. Recently, the U.S. Export-Import Bank expanded its offerings for small business owners to include working capital loan guarantees and export credit insurance. This means better liquidity conditions for U.S. entrepreneurs and faster claims processing for American small-business owners. Credit guarantees are proliferating globally and present a large body of practical knowledge and empirical data on how they could be tailored to the realities and needs on the scale of Guyana’s own developing economy.
Algeria provides a good example of what a guarantee programme could achieve for Guyana’s small business sector. Several Algerian government agencies tasked with small enterprise and entrepreneurship development (similar to Guyana’s SBB) provide 28-29% of the project cost, while the borrower makes a 1% or 2% contribution (or in some cases, no contribution) and the remainder (70%) is financed by a bank loan at a subsidised interest rate, as negotiated with the bank. The interest rate is subsidized at 100% from the government agency. These projects are often capped at a certain amount so as to ensure access to as many small business borrowers as possible.
The Guyana government also has fiscal and monetary tools at its disposal for the mutual benefit of businesses and the banking sector. For instance, one option is to offer automatic concessions on duties and taxes on small business capital assets that then can be used as financing collateral. For commercial banks, government can offer incentives to institutions willing to participate in a financing programme for micro and small businesses. These could include tax breaks or an easing of some of the Bank of Guyana requirements for those lending institutions able to meet a specified annual quota of lending activity as advanced to small businesses.
For any financing programme to work effectively, the SBB would have to ensure it has adequate funding to increase its own capacity to ensure that small businesses are formalised and registered and that their owners receive sufficient capacity-building training about business fundamentals and management skills. These prerequisites can enhance and strengthen the likelihood of businesses being able to thrive and meet their obligations while mitigating concerns from commercial banks that businesses might default on the terms of their loans.
