SMALL BUSINESS agencies must ensure that the funding and resources earmarked for these bodies get to budding entrepreneurs and those seeking to establish small enterprises as efficaciously and expeditiously as possible said the new Minister of Tourism and Industry, Aloun Assamba.
She was the special guest yesterday of a forum hosted by Development Options president Maureen Webber at the Kingston Hilton Hotel. Guests included bankers, financiers and leaders of the small business sector to discuss policy issues, the establishment of a viable credit bureau, loan schemes, venture capital and the financing for start ups among other issues.
The Minister made it clear that "it is imperative that entrepreneurs gain access to funds specifically set aside for that purpose and that operators in the sector should not lose sight of that as they look to implement policies and prescriptions to strengthen the sector."
President of the Small Busi-ness Association of Jamaica (SBAJ), Andrea Graham, stres-sed the need for funding and pointed to her organisation, saying it could do so much more if it had more financial resources.
Ms. Graham said the SBAJ was particularly relevant to the sector as initial enquiries come to the SBAJ before they are filtered to the respective agencies.
"When it comes to financing, most of the small business people fall into a certain crack because of the old broad brush treatment they receive. By broad brush I mean they get treated like the larger businesses and the information needed from them is just not there the track record of the small businessperson is therefore seen as a hindrance.
"Someone has to invest in the sector so that we can ensure small businesses get much needed assistance so that later on they can create employment.
Mr. Vassel Brown of the Self Start Fund gave an insight into how schemes should work and put forward a proposal that hopefully the Ministry will adopt.
"Instead of having a scheme continue in perpetuity, every time a loan payment is made by a borrower, we use it to reduce the exposure to Government, which means it is a one off transaction.
"I have developed a 12 page document on the implementation of this scheme but the concern is with the fiscal challenges that we are facing. The Government is now constrained by the comfort letters and guarantees it can perhaps issue which would increase the national debt. That's why I'm saying in the beginning it has to be non-revolving which means if the Government guarantees $100 million in the first year, because it is non-revolving the $33 million of the Government's exposure would have come down based on the payments that would have come in.
Mr. Brown went on to say that he had concerns for the sector particularly as it did not make a concerted effort to create em-ployment. He said there has been a shift at the Self Start Fund where it's average loan size is now closer to $120,000 coming from $20,000 a few years ago.
Of particular concern is that if interest rates were to fall even further, commercial banks which contain the largest pool of funds, are likely to shy away from the sector because they perceive some risks both in the socio-economic outlook and also because there still is a large attraction to Government securities and the margins one can get from them.
For instance, if you get money at 6 per cent to borrow and you are looking for a spread of 5 or 6 per cent on it in Government Paper to lend to somebody with a spread of 8 per cent, one may still go for Government Securities.
But this may not be peculiar to just Jamaica because after the fall out in the savings and loans debacle in the United States, the Federal Reserve lowered interest rates substantially and the banks still did not embark on a loans drive.
After the formation of FINSAC, people have become risk averse in Jamaica, and commercial banks will look at somebody borrowing between $100,000 to $500,000 as a substantial risk. That borrower is not deemed to have the type of conventional security that the banks require and the banks do not have the faith in that borrower's management capabilities in place. In fact if one wanted to borrow $100,000 from a bank it is likely that he or she will be issued with a credit card because it is too expensive to process a loan. It is therefore apparent that the small business sector cannot look to the commercial banks.
The Scheme that Mr. Brown has devised would target 300 borrowers and would also be based on gender equity with significant coverage in the rural areas and interest rates should be affordable and economical which will be placed in the region of between 10 to 12 per cent and so should stimulate savings.
Of significance here is performance ceilings of up to $5,000 per borrower with concentration limited by sector which means limiting exposure not to just much one sector.
There should be a mix of conventional and non-conventional securities. This programme should not be for more than 3 to 5 years with the establishment of prudent loan mechanisms with cash flow supporting the programme and the implementation of high recovery loan rates set in place.
Emphasis will be placed on stringent loan monitoring schemes.
Mr. Brown stressed that it would not be simply a case of going cap in hand to the Ministry of Finance but that the Self Start Fund may free some assets to underwrite the risk.
See this Friday's Financial Gleaner for the establishment of an effective credit bureau.
