Representatives of the Inter-American Development Bank (IDB) are anticipating that the launch of a $70 million Enhanced Credit Guarantee Fund will increase access to funding of for Small and Medium-sized Enterprises (SMEs), given that the sector only utilizes about 30 percent of available financing.
IDB country representative Juan Carlos De La Hoz Vinas told last evening’s launch at the Grand Salle of the Central Bank of Barbados that officials are also anticipating the new loan scheme to contribute to income and job creation, which he said was “very important to fuel growth in the long-term basis”.
He noted that while the lack of access to finance remained one of the main obstacles for the continuous growth of the small business sector, existing levels of productive investment is relatively moderate.
“So data shows that over 60 per cent of the credit available by the end of 2013, was dedicated to personal consumption and the Government, whereas 35 per cent of the credit was dedicated to financing needs of private firms in productive sectors,” Vinas said.
He noted that in the past commercial banks maintained a perception of high credit risk when considering granting loans to the SME sector. This, he said, was recently compounded by the international financial crisis and its consequences on the local economy.
“As a result, small and medium-sized enterprises are required to provide high levels of collateral to secure credit. However, the range of available assets for collateral as well as the type of legal entities that have the ability to pledge collateral is limited. And we all know that the Government of Barbados has made a concerted effort to develop its public policy to support the small firms for the country,” he said.
The Fund will provide loans to SMEs with no more than 200 employees, and annual sales or total assets not exceeding $20 million.
The funds will be issued via intermediary financial institutions including commercial banks, Consolidated Finance Company Ltd, Globe Finance Inc., Signia Financial Group Inc., Capita Financial Services Inc., and Citicorp Merchant Bank Limited, which will also be responsible for setting the interest rate.
The government will provide guarantee for loans to purchase equipment and machinery, land and buildings; expand and improve infrastructure; increase permanent working capital which is tied to an investment loan; and implementation of new technology, techniques and processes.
The IDB representative said officials anticipated that the multilateral fund would “leverage a minimum of $44 million in credit and support at least 200 investment models to small and medium enterprises by 2020, which we feel is a very interesting time”.
Meanwhile, Parliamentary Secretary in the Ministry of Finance Senator Jepter Ince said the fund came at a time when the economy was showing signs of recovery, adding that the SME sector played a vital role in the country’s social, economic and financial viability.
“This project can be considered part of government’s efforts to restructure and diversify the economy. Therefore it is imperative that we minimise those exposures that may undermine the success of this project in the short, medium and long term,” Ince said.