Govt pushes for collateral registry to unlock small biz lending

Nearly all businesses in Barbados are micro, small or medium enterprises, yet more than half earn no more than $100 000 a year — a figure that reflects what business development minister Kerrie Symmonds said is a structural flaw at the heart of lending: banks demand land as collateral, and most small business owners simply do not have any.

Many micro, small and medium enterprises (MSMEs) are unable to secure loans due to a lack of traditional assets, limiting their ability to grow, said the senior minister at the State of the Sector Conference at the Lloyd Erskine Sandiford Centre on Wednesday, where a new national MSME study — the first in ten years — was launched.

The study revealed that 98 per cent of businesses in Barbados fall within the MSME category, but 53 per cent report annual revenues at or below $100 000.

This points to a sector constrained by financial barriers, as many businesses do not have the land or property typically required by banks, Symmonds said. 

“You would have seen the government canvass some of these in the last election, and then we moved swiftly in the last budget to introduce the idea of factoring. This is something that we will pursue very urgently.”

He said a collateral registry could provide a solution for entrepreneurs who lack traditional forms of security:

“A major supporter of the concept of a collateral registry to enable our people who have small, medium, and micro businesses but do not have access to the traditional collateral of real estate, those people who go to our friends in the banking community and are told that you have to present a piece of paper that suggests that you own something, but really and truly what they have owned is their idea.”

Using farmers as an example, Symmonds explained that many have valuable assets but do not meet lending requirements because they do not own the land they work.

“He doesn’t have the land because government has facilitated him with the land, but what he has is the capacity to use his crops and all of the other things associated, the equipment as collateral, if only the economic structure of Barbados allowed for that to happen.”

The minister pointed out that similar systems are already being used in other developing regions:

“It is being allowed to happen in Colombia and across Latin America. It’s happening in North Africa and extending into Central Africa and East and West Africa, and the developing world is recognising that this is where development can take place for ordinary people.”

He added that equipment and other business assets could be leveraged to unlock financing, particularly for small operators looking to expand.

“The neotechnology people have their equipment. None of them are likely to come to ask for a $100 000 loan, but what they may want to do is to be able to expand their business, their storefront, their operation, but they have invested in equipment which can have the benefit of being used in a collateral registry structure, and it is not beyond us to write the necessary regulatory legislative or create the legislative environment so that we have a secondary market.”

He said such a system would also reduce the risk to lenders:

“The bank or the lending institution has the opportunity to recoup that which it has potentially stood and at risk of losing, but we have to be prepared to rethink the way in which we do these things.”

(LG)