AS­SETS OR LI­A­BIL­I­TIES?

Mi­croloans in the Caribbean

The Star (St. Lucia) - Business Week - - FRONT PAGE - BY ED KENNEDY, STAR BUSI­NESS­WEEK COR­RE­SPON­DENT

When ex­e­cuted cor­rectly, fos­ter­ing an en­tre­pre­neur’s or new busi­ness’s growth is one of the great­est ways to ad­vance a lo­cal com­mu­nity. Progress in busi­ness is not the only realm, of course, but when growth is achieved here, it de­liv­ers a ton of truly fan­tas­tic ben­e­fits.

It pro­vides on­go­ing in­come, grows an as­set, and of­fers nu­mer­ous flow-on ben­e­fits for the in­di­vid­ual like build­ing a broader so­cial net­work and play­ing a deeper role in gov­ern­ment. At the heart of it, it of­fers those who started the busi­ness, sta­bil­ity and greater fi­nan­cial se­cu­rity.

It’s for these rea­sons, and more, that mi­croloans have grown to hold great sup­port in re­cent years. At their best they can be a great ve­hi­cle for grow­ing lives and a na­tion’s econ­omy. But what is­sues are in play here be­neath the sur­face? How have mi­croloans fared in the Caribbean? And what changes are ar­riv­ing to re­de­fine this field? Let’s look now.

MAK­ING A SUC­CESS OF MI­CROLOANS

In 2018 there is around US$34 bil­lion cir­cu­lat­ing around the world in mi­cro­fi­nance ini­tia­tives. At the heart of this fund­ing has al­ways been a strong but sim­ple con­cept: that if as­pir­ing en­trepreneurs in de­vel­op­ing na­tions are given the funds they need to build a busi­ness, they would go ahead and do it!

Con­ven­tional loans to would-be en­trepreneurs who may have lit­tle ex­ist­ing in­come, em­ploy­ment or as­sets wouldn’t work. Be­yond the red tape of the ap­pli­ca­tion process, con­ven­tional loans seek re­pay­ment with in­ter­est. Of­ten­times these in­ter­est rates are very high in de­vel­op­ing na­tions, mak­ing the idea of bor­row­ing money even more daunt­ing.

This ad­di­tional fi­nan­cial pres­sure - not to men­tion men­tal and emo­tional toll on a per­son al­ready strug­gling to achieve and hold fi­nan­cial sta­bil­ity - means that even if an en­tre­pre­neur with lit­tle in­come could seek to gain ap­proval for a loan, the prospects for a suc­cess­ful out­come would be un­en­cour­ag­ing.

Mi­croloans also en­able the sup­ply of an­cil­lary em­ploy­ment ser­vices that could be taken for granted by many busi­nesses for­tu­nate to en­joy greater prof­itabil­ity. From sick leave to work­place in­sur­ance, to the pay­ment of an ac­coun­tant for an an­nual tax re­turn, as a whole, mi­croloans make up a big ecosys­tem.

NO SMALL DRAW­BACKS

While on paper mi­croloans clearly look to be a promis­ing pur­suit, in re­al­ity de­bate con­tin­ues as to their over­all ef­fec­tive­ness rel­a­tive to other op­tions. While pro­vid­ing the fi­nan­cial sup­port for some­one to start their own busi­ness is clearly ap­peal­ing, busi­ness is, of course so of­ten a mix of ex­per­tise, good strat­egy, and tim­ing.

In the ab­sence of an en­tre­pre­neur hav­ing these qual­i­ties on their side, pro­vid­ing a path for their greater ed­u­ca­tion - so as to find em­ploy­ment with an­other busi­ness be­fore then per­haps start­ing their own ven­ture - could pro­vide a more sta­ble and se­cure route. This is es­pe­cially so be­cause of the vari­ables that ex­ist from one com­mu­nity to an­other.

The suc­cess of an ini­tia­tive like mi­croloans in one na­tion (such as the Grameen Bank in Bangladesh) is right­fully in­spir­ing, par­tic­u­larly for the re­sults it has yielded in de­liv­er­ing greater equal­ity of op­por­tu­nity to women in the na­tion.

But such an ini­tia­tive can­not sim­ply be repli­cated else­where with­out con­sid­er­a­tion of unique lo­cal fac­tors.

THE CARIBBEAN EX­PE­RI­ENCE

The Mul­ti­lat­eral In­vest­ment Fund (MIF) has been a pi­o­neer of mi­croloans in this re­gion. op­er­at­ing since 1993. While it does not di­rectly fund en­trepreneurs, it has over US$100 mil­lion at its dis­posal for use in Latin Amer­ica. It is ac­tive within 26 coun­tries through­out the re­gion and, most im­pres­sively, has scope to pro­vide up to $2 mil­lion to a project.

What the MIF has done well is en­gage­ment with stake­hold­ers at the grass­roots level, us­ing lo­cal part­ners in­stead of an ex­clu­sively ‘top down’ struc­ture, to see funds chan­neled via lo­cal groups who know their com­mu­ni­ties and coun­tries best.

The Caribbean Mi­cro­Fi­nance Al­liance (CMFA) has also been a leader in this field. Re­cent years have seen it per­form strongly, with 2015 see­ing over 22,000 clients served, and US$23 mil­lion de­ployed as loans in the re­gion.

These re­sults are im­pres­sive but so, too, is the CMA’s wider work in pro­mot­ing re­spon­si­ble lend­ing within the re­gion, as ul­ti­mately its mem­ber­ship still ac­counts for less than 50% of the to­tal sec­tor in the Caribbean. That means its words are just as im­por­tant as its deeds, es­pe­cially be­cause much of the suc­cess of mi­croloans is de­pen­dent upon sub­jec­tive at­ti­tudes.

Grow­ing fi­nan­cial lit­er­acy is not a goal con­fined to the Caribbean. Yet it’s also true that of­ten the abil­ity of mi­cro­fi­nance and mi­cro­cre­dit in­sti­tu­tions to suc­ceed is ham­pered by (what is usu­ally con­sid­ered) good fi­nan­cial prac­tice. In a cul­tural quirk, sta­tis­tics show English-speak­ing Caribbean na­tions typ­i­cally record a higher rate of sav­ings com­pared to non-English speak­ing na­tions.

This is fan­tas­tic for their sav­ings ac­count, but it can mean the recog­ni­tion of the op­tions avail­able via mi­cro­fi­nance and mi­cro­cre­dit ini­tia­tives is not al­ways im­me­di­ate. Many en­trepreneurs and busi­nesses will de­lay the prospec­tive growth of their busi­ness that would oth­er­wise be avail­able via mi­cro­fi­nance.

MI­CROLOANS IN THE E-COM­MERCE ERA

One of the changes we’ve also seen in re­cent years has come with the rise of the ‘Kick­starter econ­omy’. It of­fers an al­ter­na­tive to the mi­croloans for­mula.

Once upon a time not-for-profit chan­nels com­monly ex­isted in a cen­tralised and remote struc­ture. To­day all that is re­quired to gen­er­ate in­come for a new busi­ness is a solid pre­sen­ta­tion on­line and a Pay­Pal ac­count.

While web­sites like Kick­starter and GoFundMe won’t re­place the mi­croloans sec­tor by de­fault, they are il­lus­tra­tive of the new op­por­tu­ni­ties the dig­i­tal econ­omy is cre­at­ing for busi­nesses to grow and gen­er­ate cap­i­tal. When it comes to seek­ing to de­liver the ben­e­fits of mi­croloans while also nav­i­gat­ing unique cul­tural quirks in cer­tain na­tions and com­mu­ni­ties, it’s an­other av­enue.

SMALL LOANS IN A BIG WORLD

Mi­croloans may re­tain a mixed record but part of this is owed to cov­er­age; just the same as it’s of­ten over­looked that, save for 25 na­tions or so, ev­ery other coun­try in our world of al­most 200 is clas­si­fied as de­vel­op­ing. Even eco­nomic giants like the Peo­ple’s Repub­lic of China, Brazil and In­dia are de­vel­op­ing.

Ul­ti­mately, while mi­croloans are most prom­i­nent in de­vel­op­ing na­tions, all pro­fes­sion­als glob­ally in busi­ness can en­counter great chal­lenges thanks to a poor le­gal struc­ture or fi­nanc­ing.

It’s a con­fronting re­al­ity in a world where ap­prox­i­mately 836 mil­lion peo­ple (around 12% of the world’s pop­u­la­tion) con­tinue to ex­pe­ri­ence ex­treme poverty while, for many decades, strong eco­nomic growth and the rise of the mid­dle class in boom­ing economies like In­dia have made in­roads.

Cer­tainly de­vel­op­ing na­tions have dif­fer­ent chal­lenges com­pared to de­vel­oped ones but those chal­lenges are not nec­es­sar­ily al­ways exclusive. Progress in one area could as­sist in the other.

In Latin Amer­ica and the Caribbean alone, some 600 mi­cro­fi­nance in­sti­tu­tions have lent around $12 bil­lion to more than 10 mil­lion low-in­come clients

Newspapers in English

Newspapers from Saint Lucia

© PressReader. All rights reserved.