It was hailed this week as a brand new initiative that will benefit small and medium sized enterprises.
However, with the ink barely dry on the Government’s $70 million Enhanced Guarantee Fund, the Chief Executive Officer of the Small Business Association (SBA) Lynette Holder has cast doubt over the Central Bank-managed initiative.
This follows Wednesday’s signing by Central Governor Dr DeLisle Worrell and Minister of Economic Affairs Chris Sinckler of a trust deed for 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 Central Bank will administer the facility from which businesses with annual sales or assets of up to $20 million and less than 200 employees can borrow 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.
However, Holder told Barbados TODAY while she welcomed more funding for the sector, she was concerned about the “systemic problems” that existed when it came to small businesses accessing funds.
“We are concerned that in the absence of changing the systems and methodologies around the application for these funds that small businesses will not benefit.
“Our view is that it could be $70 million, it could be $1 billion, if we do not change the administration of funds for the sector, the sector still will not benefit,” said Holder.
She also questioned: “Why are we putting money for small business development in the Central Bank?”, while pointing out that “all of the research shows that central banks are not the appropriate institutions to administer funds for small business development”.
She also called into question the financial institutions’ administration of other funds, saying “look at the history of the credit guarantee scheme introduced in the 1990’s.
“[It] continues to be a dismal failure in terms of making the kind of impact in the sector and giving the financiers the confidence to be able to access these schemes.
“That has not been the reality of the funds. So you are going to take a further $70 million and put into an already ineffective system, an already ineffective process and expect that it will redound to the small business sector?
“This has been our issue for the last three or four decades. We have to improve the access to funds for small business development,” she argued.
Noting that the availability of funds was not the problem, Holder suggested that the monies be placed in Fund Access, which currently provides funding for micro enterprise development. She also said a new scheme could be developed that would help “the very micro” business operators to fund their debt and help with their development.
“Fund Access is under-capitalized significantly, why not negotiate funds to capitalize them that they can provide micro loans?
“Why not negotiate those kinds of funds and put them in financial institutions with proven track record in being able to help small businesses,” she said.
Officials have given the assurance that the facility would be “transparent, flexible and ultimately accessible” to business operators, and that loans would be reviewed and approved by independent financial institutions, including commercial banks.
However, Holder said she was not convinced.
“I know for a fact that commercial banks may have been encouraged and there are times when banks approve loans, and the same Central Bank and their unit deny the same loan that was approved by a commercial banker. So the question for me would be what is your record Central Bank in doing this?
“What I am saying is think now creatively and innovatively of how we are going to bring these funds to help the sector. I am not seeing that here at all and I am very disappointed with this approach. But, as they say, the proof of the pudding is in the eating so I will wait and see the results of this effort,” added Holder.