Unlocking Finance – A Prerequisite for Caribbean Transformation
As we in the Caribbean seek to fasttrack recovery and build a post Covid-19 world where business plays a leadership role in creating much needed jobs, access to finance remains a major constraint. The World Bank in its 2020 Ease of Doing Business Report notes that of the 14 Caribbean countries that were reviewed in its annual report, only 3 of them: Jamaica (ranked 15th), Trinidad & Tobago (ranked 67th) and Guyana ranked 94th) are among the top 100 countries globally in accessing credit. This is out of a total of 190 countries. Simply put, we are not doing well in this critical index.
In 2016 the Caribbean had 11 countries ranked among the top 100. This worsening situation tells an all too familiar story in our region. I hear these stories on a daily basis, in conversations with businesspeople across the Region on the massive challenges in accessing finance. The World Bank’s report captures a very important part of the story on lending in the Caribbean. Surveys undertaken by Caribbean Export point to as much as 48% of small- and medium-scale business, reporting that access to credit is the major challenge they face.
We at Caribbean Export are providing some critical assistance in this area. With support from the European Union, we continue to provide much needed financial assistance to small and medium business across the Region. More specifically, we have been providing small-scale grant financing to help these businesses withstand the shock of the pandemic and create new opportunities.
In 2018, Caribbean Export awarded approximately €2.2 million in grant funding and about 41% of beneficiaries boasted that the grant funds helped them to penetrate new markets, while 79% reported an increase in export sales. Overall revenues increased for 64% of beneficiary firms and 36% of firms were able to reduce their energy costs having used the grant funds to implement energy efficiency projects. Twenty-one per cent of firms were able to enhance general productive capacity and efficiency. Recognising that funding support is extremely critical during the pandemic, Caribbean Export plans to build on these results by continuing to offer targeted grant funding on a non-reimbursable basis. The Region needs to do more to support this sector which accounts for most jobs generated in our Caribbean.
The Caribbean Development Bank has also joined our partnership with the European Union in this endeavour and we have launched a call for proposals where businesses can access up to US$15,000 in grant finance. Grant funds are often highly competitive and for this reason, they should not be considered as a primary source of income for small businesses, but as cash infusions to fund special projects that can help to speed up growth, particularly post Covid-19. Please do visit our website at carib-export.com to get more information.
Another alternative source of finance is angel investment, which is a form of equity financing where the angel investor supplies capital in exchange for an equity position in the business. Angel investors are high net worth individuals who are looking for a higher rate of return, typically of around 25% to 60%, than would be given by more traditional investments. Equity financing is normally used by startup and growth businesses that do not have sufficient cash flow or collateral with which to secure business loans from financial institutions.
Angel investing is still a relatively nascent concept in the region. Consequently, entrepreneurs interested in angel investing need to understand the fundamentals of angel investing and what to expect when an angel investor is interested in an equity stake in their business. Since 2018, Caribbean Export has been offering capacity development support in these areas and plans to continue to provide specialised support to both entrepreneurs and angel investors to bridge the angel investing divide in the region.
The issue of credit is a central issue. Therefore, with funding from the Africa, Caribbean and Pacific Investment Climate Reform Facility, we are working to understand the challenges facing CARIFORUM countries in the establishment and operationalisation of efficient credit bureaus and secured transaction systems (collateral registries). The World Bank, in its Ease of Doing Business Report, looks closely at these two aspects of the credit infrastructure in a country, noting that credit bureaus and registries are essential elements of the financial infrastructure that help to address the issue of access to financial services, including credit.
By sharing credit information, a credit reporting system helps to increase access to credit for small firms, improve borrower discipline, and support credit risk monitoring. In our region, where movable assets often comprise most of the capital stock of our private firms, we need to establish systems that allow our firms to use inventory, accounts receivables, crops, and equipment as collateral. We cannot transform our Region if we do not innovate and move to a financial architecture that meets the needs of our times.
In summary, we at the Caribbean Export Development Agency will continue to support these initiatives that are having and can continue to have a major positive impact on businesses across our Region. However, the reality is, much more must be done. Particular attention must be given to the establishment of a regional capital market that can unleash and leverage finance regardless of geographic
location. Whereas we recognise the imperative of foreign direct investment, the stark reality is that we have massive assets in our financial sector and pension funds that can be used to spur inclusive growth and job creation both nationally and regionally. A regional stock exchange will also propel business at the regional level to take advantage of regional opportunities as they seize opportunities provided by new economies of scale. To succeed, we need steadfast commitment backed by a clear and ambitious agenda. Much is at stake and failure is not an option.
Deodat Maharaj is the Executive Director of the Caribbean Export Development Agency and can be reached at: dmaharaj@carib-export.com