Dear Editor,
The recent passage of the Security Interests in Moveable Property Bill 2024, aimed at making financing more accessible, is commendable in its intent. It encourages commercial banks to extend lending to Small and Medium Sized Enterprises (SMEs). However, there’s a structural mismatch at play.
Commercial banks, by nature, are risk-averse institutions designed to prioritise short-term profitability over long-term development. Their mandates do not align with the needs of businesses at the heart of Guyana’s development story. Many SMEs operate in the informal economy, unregistered, unbanked, and unable to meet the stringent collateral demands of commercial banks. Tax evasion, while widespread, creates another roadblock: financial statements reflecting underreported income weaken their creditworthiness. This is where the limitations of the current system are most glaring—and why a development bank is not just desirable but necessary.
Efforts by the government to modernise Guyana’s financial system provide a solid foundation for the establishment of a development bank. President Dr. Mohamed Irfaan Ali’s announcement in June, 2024 of updates to the Financial Institutions Act (FIA) signals a commitment to aligning Guyana’s banking sector with international standards, attracting global financial institutions, and bolstering investor confidence. These reforms, while primarily aimed at creating a more stable financial environment, can also support the framework for a development bank by ensuring robust regulatory and compliance mechanisms.
Some might be inclined to highlight the reported growth in private sector credit—from $259.9 billion in 2020 to $376 billion in 2023— as an expansion of credit availability. However, the increased access is largely tied to traditional commercial banks, which remain ill-suited for the long-term, high-risk investments that SMEs require. IDB-Invest is also said to have facilitated $173 million in investments across hospitality, education, and oil and gas, which underscores the opportunities within Guyana’s diversified investment landscape. Again, while international partnerships are essential, the need for a dedicated, local institution to nurture small businesses and foster equitable development remains unmet.
Looking to the global south offers instructive lessons. The Brazilian Development Bank (BNDES) has long been a cornerstone of Brazil’s economic growth, providing SMEs with patent capital and targeted support for innovation and industrial development. The BNDES operates largely through an indirect lending model, where the bank partners with accredited institutions such as commercial banks, cooperatives, and development agencies to disburse funds. This approach minimises the need for physical infrastructure or an extensive network of branches, significantly reducing overhead costs while leveraging the local expertise and reach of these partner institutions. Guyana could adopt a similar model, allowing a development bank to collaborate with existing commercial banks and other financial entities to channel resources to SMEs and underserved sectors. Here’s why we need to move in this direction:
• SMEs require long-term, flexible financing to scale operations, especially in sectors like agriculture, tourism, and technology.
• Unlike commercial banks, a development bank could focus on underserved sectors and regions, ensuring that traditionally marginalised communities are not left behind.
• By coupling financing with technical assistance, a development bank could strengthen the financial literacy and operational capacity of SMEs.
• A development bank could provide credit guarantees or co-financing schemes to mitigate the risk for private banks, thereby crowding in commercial capital.
In a society where entrepreneurship has only recently gained prominence, intentionality is critical. As my friend the ‘Amazing Greg’ aptly noted on social media recently, “Guyana needs more mentors.” The opportunities may be plenty, but they require deliberate cultivation. Trade associations like the Georgetown Chamber of Commerce and Industry (GCCI) and the Women’s Chamber are making strides in support of businesses, but their efforts must scale alongside our economic ambitions. From incubation hubs and mentorship programmes to financial literacy workshops, these organisations also have a pivotal role in creating a culture that prioritises business formalisation and growth. The harsh truth is that for many entrepreneurs just starting out or transitioning from the informal sector, a higher degree of handholding is required.
The current system overwhelmingly favours established businesses with the capacity, experience, connections and of course assets. Without intentional effort to address existing challenges, the inequality gap inevitably widens. The private sector in Guyana is just over 30 years old. Many entrepreneurs are still figuring it out, and the historical lack of focus on business has left gaps in institutional support. However, these challenges are also opportunities to build something truly transformative. With a development bank at the centre, Guyana can lay the foundation for a diversified and inclusive economy—one that uplifts not just the elite but many, if not all Guyanese.
The road ahead is not without obstacles. Creating a development bank requires political will, institutional reform, and robust oversight mechanisms. Yet, as the example of Brazil shows us, the rewards far outweigh the risks. Guyana’s oil wealth is a once-in-a-lifetime opportunity. By investing in a development bank, we can ensure that this wealth translates into long-term prosperity for all.
Sincerely,
Janelle Persaud
Managing Director
Cacique Consulting
