The Wild Coot is interested in finding out the effectiveness of the sourcing of funds to support guarantees to the lending institutions in Barbados. How crucial is the Central Bank’s ability to assess proposals that will meet the criteria from the lending institutions?
Try as we may to avoid it, we need a development bank. Will an entrepreneur go to the Central Bank first? What measures are available to the Central Bank in assessing and utilising the new source of support funds for a guarantee scheme for small and medium-size entrepreneurs? Will Central Bank bear all of the risk or is it asking the commercial institutions to bear some? That has implications. Information man, information.
If I am not mistaken, the scheme is called a guarantee scheme. This means that entrepreneurs have to go to some other institution for the loan. The Central Bank’s assessment of a proposal is not of central use. The other institutions that have been approached by the entrepreneur assess the proposal, and make a decision.
If the brain cells are still working, I remember that I was taught to fully assess the entrepreneur’s proposal, and determine its feasibility. The last question that I will put to the entrepreneur would be, “What are you going to give me as collateral to support this proposal that I find workable?” In the absence of cash, an insurance policy, land or another form of collateral, the entrepreneur would say, “Ah, I have a guarantee from the Central Bank.” This means that the Central Bank has the capacity to have already assessed the proposal and found it favourable. It seems to me that the guarantee of the Central Bank is the last point of consideration.
The way that the Wild Coot assessed the wide advertisement of the Central Bank to come to the Central Bank may imply that the guarantee would assure the entrepreneur of a successful loan. It needs careful consideration. The guarantee comes into play when the commercial bank or the lending institution has a feasible proposal before it.
The Wild Coot does not want to pour cold water on the proposed scheme or the initiative, but what is the current attitude of the commercial banks and other lending institutions viz-a viz the present lethargic state of business in the country? It is questionable whether the fact that there is a Central Bank guarantee in the offing will sway the decision of the lender and more so if part of the risk is to be undertaken. The prevailing harsh financial conditions have not given confidence for lending and it would appear that we are putting the cart before the donkey crying “chee up jackass, chee up”.
Whenever the economic circumstances favour lending by the institutions, then the guarantee of the Central Bank can kick in.
But what about this Central Bank guarantee? It is not the first time that it has been tried. If questioned, the Central Bank may not be able to report stellar success with prior efforts. Maybe it was not satisfied with the reputed unhealthy haste with which commercial banks were requesting satisfaction of claims under the guarantee.
Maybe the commercial banks were to blame for not making an effort to use their expertise to nurse failing entrepreneurs to improved health before claiming on the Central Bank. This may be even more of a problem now that branch management expert supervision has given way to centralisation of the decision-making process on the grounds of cost savings – I hear that it is the computer that makes the decision.
So where does that leave the proposed Central Bank guarantee scheme? Using Microsoft Excel allows the Central Bank to say, even to the media, how responsive the commercial sector has been to the scheme. In a touch-and-go situation the guarantee can influence a decision but the proposal must match the bank’s portfolio of lending and its current record of impaired accounts. If the guarantees were to be tabulated on an Excel spreadsheet the information would be readily available for those to whom the Central Bank chooses to share it.
The areas that qualify entrepreneurs to use the guarantee are areas that should be covered by commercial lending institutions. The question that we should ask is, why are these institutions not lending? Is it the absence of a guarantee (the last question to be put to a borrower)? s this the stumbling block?
How much traction can we give to the Central Bank’s initiative if the prevailing lender’s view of the market is unfavourable?
Harry Russell is a banker. Emai quijote70@gmail.com
