Government is moving to “guarantee” that access to finance is no longer a problem for Barbados’ smallest businesses.
It has initiated discussions to borrow $50 million from the Inter-American Development Bank (IDB) “to establish a guarantee mechanism to facilitate access to medium and long-term financing for small and medium-sized enterprises through the local commercial banks.
As proposed, the project will be managed by the Central Bank of Barbados and is intended to “compensate for the lack of collateral that the commercial banks require for small and medium enterprise loans”, BARBADOS BUSINESS AUTHORITY confirmed.
While the Enhanced Access To Credit For Productivity Project is still in the preparation phase, a 16-page “project profile” said the aim was to “contribute to increase productivity for SMEs by facilitating access to medium and long-term credit”.
There will be a special emphasis on tourism-related ventures.
“The project would provide continuity and enhance prior guarantee mechanisms activities that the Government of Barbados has undertaken to promote productivity, with particular emphasis on SMEs as an important part of its new strategy to stimulate the tourism sector in the country’s National Strategic Plan,” the document said.
“It is expected that in the long term, the guarantees undertaken under the project will have a demonstration effect that will stimulate a higher risk appetite for commercial banks in the SME segment and lead to increased financing in this market segment.
“It would be designed based on the existing experience of the Central Bank in managing guarantee schemes, and would be developed with the necessary resources and flexibility to address the current risks perceived by commercial banks, and stimulate SME access access to medium and long-term credit.”
The project was initiated on the premise that access to finance is “the most important constraint for doing business in Barbados, particularly to SMEs” and hence there was a need to ensure that these companies are “able to maintain business continuity and to invest in innovation needed to adapt to new tourism models and business diversification that the economy requires”.
“The banking system in general has tended to compensate its risk aversion by requiring high levels of collateral for lending operations. However, the range of available assets for collateral to banks is limited, as are the types of legal entities that have the ability to pledge collateral within the legal frameworks of most countries in the region,” the project document observed.
