Commercial bank lending and the growth and sustainability of the small business sector
By Jacquelyn Hamer
Both the Government of Guyana and the Guyana Bank for Trade and Industry (GBTI) are deserving of some measure of congratulations for the recent complementary measures which they have taken to provide some support to unemployed persons, particularly unemployed and single women who are desirous of becoming involved in small business pursuits. The recent passage of the Fiscal Enactment (Amendment) Act which allows for the waiving of taxes on some categories of small business loans made by commercial banks have allowed GBTI to institute its new Women of Worth programme under which especially disadvantaged women can access modest loans from the bank without having to produce the customary credentials associated with borrowing from commercial banks.
I have argued previously that while commercial banks’ lending policies must reflect a mindfulness of the need to protect depositors and shareholders’ interests, those banks, simultaneously, must seek to fashion lending policies that encourage the growth of business; and, as it happens, the overwhelmingly majority of businesses in Guyana are small businesses and most of them could do with a more encouraging commercial bank lending policy.
I like too the fact that GBTI has moved with commendable speed to put its WOW programme on the road – so to speak – by already approving and disbursing loans under the scheme. As most of us who follow business affairs in our country are aware the time lag between legislation and the actualization of legislation – the Small Business Act is an example that comes readily to mind – is sometimes agonizingly long, a situation that can lead – and, in all likelihood, has led – to loss of interest among those who are desirous of benefitting from such schemes.
Let me add before I proceed much further that in recent years some of our major commercial banks have been going to some lengths to advertise their endorsement of small business lending and to promote their own small business lending schemes. This, I believe, has been, in large measure, a function of both their recognition of the fact that small businesses now dominate our economy and as a consequence of some amount of nudging from government.
Now that an additional new small business lending opportunity has been created within the commercial banking system there is a need to create other support mechanisms to make those lending schemes worthwhile. It should be noted, for example, that the loans available under the WOW programme are modest ones and that the beneficiaries are – I suspect – persons who possess relatively little entrepreneurial skills or experience. The point to be made here is that however much we might wish to broaden the base of lending for small business ventures, we need to ensure as high a level of sustainability as possible in such ventures. The fact of the matter is that the extent of the loans being disbursed under the WOW programme is modest and what that means is that there is little or no margin for error in the planning of such business ventures. Small setbacks could, in some cases, mean complete ruin, since there is nothing to fall back on.
Now that there is more money –admittedly in small amounts – available to the small business sector, there is an evident need for the institutional strengthening of the existing regimen of institutions that provide training in business planning and execution in all of its various dimensions.
At this point I cannot help but bemoan the fact that we do not appear to have a properly functioning Guyana Small Business Association (GSBA) with countrywide reach and that the provisions of the Small Business Act are yet to be fully implemented. I believe that these two institutions could have served precisely the purpose of helping small potential entrepreneurs utilize their loans effectively. Here, too, I wish to make a deliberate plug for the Institute of Small Enterprise Development (IPED) and EMPRETEC, two institutions, which, in my opinion, lead the way in the field of small business training locally. I cannot stress too strongly that if we broaden the base of bank lending for small and micro business ventures without creating those support institutions that can actually teach people how to run and sustain such businesses, we are likely to end up with a host of shattered dreams and financial obligations to commercial banks which simply cannot be met.
How to ensure that schemes like WOW and some of the other small business lendiong schemes work for the people whom they target is not an easy challenge. High unemployment could – particularly among single women – cause these loans to become quite attractive and those with less than well-laid plans and effective execution could find themselves up to their gills in difficulty within a matter of months. Personally, I am attracted to the mentoring scheme instituted by IPED some time ago. I believe that it was intended to attach mentors to clusters of inexperienced small business operators and schemes like WOW could perhaps work well if efforts can be made to attach mentors to beneficiaries of the GBTI loans. I say this, of course, without having any reliable information on the success level of IPED’S mentoring scheme though, with GBTI promising other small business lending schemes as a result of the recent legislation, I am sure that part of the bank’s plan is to put measures in place to
ensure maximum success in the various ventures.
Linden, it appears, has been among the first communities to benefit from WOW lending and that, in itself is a good sign. Apart from the fact that it is one of the more depressed township communities in the country, Linden, and more particularly the wider Region 10 offers some useful small business prospects in areas like agriculture and art and craft, among others. I remember that in the immediate wake of the 2005/2006 floods, the Linden Economic Advancement Programme had commissioned a Trinidadian consultancy firm to study the feasibility of undertaking large scale agricultural ventures in Region 10. This may, perhaps, be a good time to look at the prospects of pooled farming initiatives – along the lines of cooperatives – that allow persons with access to modest loans to pool their resources towards somewhat larger ventures.
On a broader scale, farming ventures offer some of the better prospects for small business pursuits particularly in rural areas where the greater availability of land and a more accommodating disposition towards farming provide better prospects. Unemployment and its attendant social and other problems are far more evident in rural and hinterland communities and the opportunities are certainly there to promote lending schemes for small entrepreneurs.
I continue to be puzzled over the fact that poultry rearing as a small business venture appears sporadic and is yet to realize the success that it can despite the fact that we experience a periodic shortage of chicken. Why many small poultry ventures have not realized the kind of sustainability and growth that they can is a matter that ought to be seriously investigated (perhaps by the Ministry of Agriculture) since, while a a few years ago we were being told that Guyana might be on the verge of becoming an exporter of the commodity we now, every so often, are told of chicken shortages.
It would also be useful to learn more about whether or not the Ministry of Agriculture, for example, is responding to the greater availability of bank loans for small business ventures, by seeking to attract more investment in farming. It can do so, by, for example, helping potential small investors to prepare technical business plans for various agricultural ventures. We already know that the National Agricultural Research Institute (NARI) is engaged on ongoing scientific and other research designed to make new entrepreneurial options available in the farming sector. Taking account of the fact that such research can often be painstaking, efforts should be made to bring them on board as quickly as is humanly possible.
Potential for investment in farming is likely to be significantly enhanced through current regional plans to create what is being described as a policy for food and nutrition security. And, interestingly, the policy seeks to address what is described in The Jagdeo Initiative as the “key binding constraints” to the region’s ability to fulfill its agricultural potential. The first two, “limited financing and inadequate levels of new investments” and “deficient and uncoordinated risk management measures” are the two that are most relevant to this article. I believe that the risk-mitigation measures – including crop insurance – that are currently being contemplated will attract more private funding to the sector.
More significantly, from the standpoint of this column, I believe that risk-mitigation measures in the agriculture sector may well offer more opportunities for small and medium sized farming ventures fashioned out of the pooling of resources by multiple small operators. I recognize here that I am once again making a ‘plug’ for cooperatives. I do so out of the conviction that cooperatives can provide an entirely feasible way of bringing small operators together at the community level in both coastal and interior areas in fairly lucrative business pursuits. The advantage of such ventures of course is that they render themselves more adaptable to risk-mitigation measures like crop insurance from which smaller ventures are less likely to benefit.