With access to finance identified as a major challenge by one out of every three local businesses, Government today introduced a new financing option – the Enhanced Credit Guarantee Fund — with the aim of providing a solution to this problem.
This morning, at Government Headquarters, the Central Bank of Barbados and Government, through the Ministry of Economic Affairs, signed a trust deed related to the new facility, which is receiving financing from the Inter-American Development Bank (IDB) and the China Co-Financing Fund for Latin America and the Caribbean.
The $70 million supporting loan, to be disbursed over five years, has a payback period of 25 years at a variable interest rate, with a grace period of 5.5 years. The Central Bank will administer the facility from which businesses with annual sales or assets of up to $20 million and less than 20 employees can borrow loans of up to $2 million. Loans can be used to purchase land and buildings, equipment, machinery, expansion and improvement of infrastructure, new technology and to develop new techniques and processes.
Describing the new scheme as timely, Business and Finance Specialist with the Central Bank, Ian Collymore, said it was created to help small and medium sized enterprises to expand and remodel their businesses through the provision of credit guarantees to commercial banks and finance companies.
The maximum term for any credit is ten years and the maximum guarantee coverage is 80 per cent. An annual fee of 1.5 per cent on issued credit is payable to the fund “to assist in ensuring its sustainability”, said Collymore.
Applications will be evaluated and approved by commercial banks and finance companies including Capita Finance, Consolidated Finance, Signia Finance and Citicorp. The process will be done online. Collymore said companies should have access to the scheme in about a week.
At the signing ceremony, Minister of Finance and Economic Affairs Chris Sinckler said the launch of the scheme should be seen as a part of Government’s plan for overall economic development and growth.
He gave the assurance that the facility would be “transparent, flexible and ultimately accessible” to business operators.
Governor of the Central Bank Dr DeLisle Worrell acknowledged that while Barbados was a very competitive jurisdiction with a number of advantages compared to other places, there were some “weaknesses” and access to finance was a major one.
“The facility we sign off on today is one of several initiatives in our ongoing efforts to improve access to finance,” said Dr Worrell, pointing out that firms experiencing problems were “often those on the frontier in sectors that are priority for the growth and diversification of our economy”.
The Central Bank Governor said while there was no shortage of “loanable funds” in the financial sector, the problem was that “available financial instruments did not fit the needs of small and medium enterprises, firms involved in innovative activities and other similar enterprises”.
“In many instances, what is needed is additional insurance or other support, which reduces banks’ credit risks, and Central Bank has a number of well-established schemes to provide this support,” he added.
The scheme is accessible to businesses in a range of sectors including agriculture, commerce, industry and services.