NEW FINANCING OPTION

SMALL and medium-sized enterprises in Barbados have the potential to create more economic growth in this country, in addition to a new wave of additional employment.

To this end, financing their operations is vital to ensure that the sector meets those national goals.

This point was highlighted yesterday by Eduardo Sierra Gonzalez of the Inter-American Development Bank (IDB).

He gave an address to the luncheon of the Barbados Chamber of Commerce and Industry at the Lloyd Erskine Sandiford Conference Centre, where the Enhanced Credit Guarantee Fund was discussed.

The official said that the IDB estimates that small businesses in Barbados account for approximately 48 per cent of this country’s gross domestic product (GDP) and 41 per cent of employment.

Gonzalez note that the Global Competitive Index, which ranks Barbados annually, had pointed to the absence of financing for business development as a major issue facing the country.

“SMEs have the capacity to generate more growth, income and jobs in the country,” according to Gonzalez. He said that currently over 60 per cent of the credit in Barbados goes towards personal consumption and to Government requirements.

However, some 33 per cent of the credit was dedicated towards private firms in the productive sectors with the majority of that going to working capital.

Said the IDB official: “Firms still face significant barriers in obtaining financing for medium and long-term capital investment to diversify and to modernise their businesses. Traditionally, the SMEs were required to provide high level of collateral to secure credit.”

He explained that these are some of the reasons why the IDB has partnered with the Central Bank of Barbados to set up the Enhanced Credit Guarantee Fund.

The Fund, he further pointed out, is therefore a response to the issues relating to the absence of financing for small business development.

Gonzalez also stressed that the Fund presents an opportunity to the financial institutions to provide loans to the SMEs while offering the same institutions the scope to mitigate the risks associated with lending to the small business sector.

Financial institutions are responsible for setting interest rates on loans guaranteed. Guarantees may be provided on credits up to Bds$2 million per project and guarantees outstanding shall not exceed Bds$6 million for any one business.

In addition, guarantees may be provided for up to 80 per cent of the credit facilities. There is a minimum loan requirement of Bds$20 000.

There were also brief presentations by Hotelier Peter Odle and Meryl Stoute of RBC Royal Bank. (JB)