Options for MSMEs’ sustainability

One financial advisor is encouraging micro, small and medium-sized enterprises (MSMEs) to familiarise themselves with the various kinds of financing available to them other than the traditional borrowing from financial institutions. Raymond Haynes, Director of Financial Advisory at Deloitte, said there were several key elements to consider when developing a capital market, including the use of technology for the sourcing and distribution of financing.

“Legislation and protection are certainly going to be an important one. Of course, one of the reasons people are apprehensive about putting money into a pool or giving money to borrowers is because they feel as though they may not be protected . . .

“So various legislation and protections around the investors and the borrowers are important,” said Haynes.

He was addressing the August webinar of the Small Business Association on Tuesday, under the theme Developing a Framework for Alternative Financing for MSMEs.

Haynes gave a breakdown of angel investing, crowdfunding, peer-to-peer lending, and equity financing, pointing out that those kinds of financing options should be explored more by MSMEs in Barbados.

He explained that they fall within three main categories – equity, debt, and donation/grants. He said Barbados had a wide-ranging Securities Act that provided protection to both borrowers and investors, but it was a matter of individuals being aware of it.

“If investors aren’t aware of the facilities out there that they can put money in and the protections available then it becomes a moot point – the money isn’t given to those who need it to develop their business,” he said.

“So the education and awareness on both sides of the fence so to speak – investors and borrowers – is mighty important. Those are the elements I think we need to think through as we try to develop the capital markets around crowdfunding and peer-to-peer lending,” he told the online forum.

Additionally, Haynes said many people were of the view that as more innovative business ideas and funding models are developed legislation was simply too reactive and “very late to some of the things that are already in the market”.

“That may be true because persons need to innovate first and then policymakers would make sure through observation, through knowledge and awareness to protect the parties involved.

But certainly, we want to start the conversation now with our policymakers around the protection for investors in peer-to-peer lending, investors in crowdfunding, and others, especially when persons are going outside of the Barbados market and try to raise funds, and certainly within our own markets in the region,” he said.

Chief Executive Officer of the Small Business Association (SBA) Senator Dr. Lynette Holder said it was clear that traditional forms of financing would not sustain the efforts of the MSME sector, insisting that there was “a need for us to explore alternative sources of financing, for us to explore different financing solutions for the sector”.

Pointing to close to $10 billion dollars in deposit-taking institutions in Barbados, Holder said there was a need for more people to look at equity financing options, crowdfunding, and other forms of financial support to the MSME sector.

However, Holder said while more organizations were seeking to enter the market to provide peer-to-peer, crowdfunding, and other types of financing, it seemed MSME operators were somewhat reluctant.

She also noted that when it came to private equity financing, companies were concerned about giving up a part of their business to others despite they were also getting technical expertise help.

Haynes said he believed there were two sides to that story – one being that those providing the finance wanted to know their investment was protected and they were getting the kind of returns they want, and the other is that the small business owner did not feel they wanted to give up a part of their company “to a stranger”.

At the same time, Haynes argued that maybe if there was an increase in peer-to-peer lending, crowdfunding, and other non-traditional forms of financing, perhaps then businesses would be less reluctant to take advantage of those options.

“If you really want to grow you have to get sources of finance and if the debt is going to be restrictive in terms of the cost of debt and the fear of ‘what if this doesn’t go well, then there are the other options we talked about which may be in the award base and equity base.

“The investees also need to be saying to themselves ‘I need to take a risk and sign of up for a particular network or an angel investor to come on board and really try and grow the business,” he advised while encouraging business owners to do their due diligence before getting into business with anyone.
(MM)