FINANCE LEASING INDUSTRY CREATION IN THE CARIBBEAN
In Business Guardian’s January 8th 2009 issue, CEO Johnathan Adams of Trinidad’s Small Enterprising Business Association estimated a decrease in national Small Micro Enterprise (SME) activities by 60% for 2009 and beyond. It is noteworthy that Trinidad & Tobago is considered a high income country having comparatively more resources than other smaller nation states to support the SME sector. This gives clear indication as to the more dire expectations for the smaller OECS countries for SME growth. In contrast, the V Summit of Americas policy called for private sector and financial institution support of SME and micro-entrepreneurial initiatives to foster human prosperity within the region.
SME initiatives have not seen the sort of results desired by investors and entrepreneurs alike, as by and large most SME activity in the Latin American and Caribbean region has operated within either a traditional lending or a subsidized framework. Both ends of the lending continuum have not lent the ingenuity and creativity needed to foster a sustainable entrepreneurial community. As well, the conglomerate and expatriate structures within the regions private sector also have deflated market penetration in the traditional commercial sense for burgeoning business communities.
Two significant challenges are posed to SMEs, that of collateral and lack of technical assistance. Traditional commercial lending provides few financing options for an SME’s lack of physical collateral, and even when the loan is had, technical assistance is lacking. Many government subsidized initiatives provide numerous grants to a quota of SMEs without access to funds or collateral. However, an added approach to financing is pivotal to fostering true accountability and longevity within small and micro enterprise initiatives. The traditional business climate as it stands is in need of additions and modifications to the SME paradigm. It is here where the creation of a finance leasing sector within Latin America and the Caribbean comes into focus.
The Small Enterprising Business Association (SEBA) CEO gives recommendations for supporting SME growth in these challenging times.
1. Have agencies such as the National Entrepreneurship Development Company (NEDCO) and commercial banks provide more loans for small businesses.
2. Have agencies such as the SEBA work with Nedco and other agencies to provide more training for entrepreneurs to equip them with the skills needed to run a business.
What institutions may provide such assistance? Via e-mail information request with Minerva A. Kotei in January 2009, IFC Leasing Specialist located in Washington D.C., we see leasing is indeed the wave of the future for SME Growth. According to Mrs. Kotei:
“IFC's experience in leasing over the past 30 years demonstrates that leasing is relevant to address the key issues that hinder SMEs access to finance and facilitates the development of a strong financial sector by broadening the range of financial services. There is however no strict institutional mechanism for developing leasing. Leasing can work as part of commercial banks operations, bank subsidiary or as an independent entity depending on the institutions operational framework and market conditions. Generally, independent units can be more effective in building a leasing market while banks in SME outreach.”
The Caribbean, especially utilizing Trinidad & Tobago as a financial and developmental hub, already possesses a far more political and economic environment, rich with entrepreneurial growth to embrace new industry creation via lease financing. For example the Business Development Corporation (BDC) of Trinidad & Tobago currently has a sound leasing and technical assistance program which, to me, is underutilized.
But what exactly constitutes a leasing industry? Is it one where the banks beef up on their equipment leasing programs for SME’s? Is it one where the government implements more institutions such as NEDCO or BDC in Trinidad to offer equipment leasing options to more SME’s? Or should a private sector leasing industry be developed, where existing construction, hardware and computer/IT firms learn how to offer leasing packages to SMEs? It may be a combination of the three. A leasing program offers SME’s access to equipment and other services. While an operating leasing leave a SME with less tangible long term assets, it allows a company to have use of newer equipment without the hassle of maintenance and obsolescence, with the option of purchase at the end of a certain period. The point is to get around the lack of collateral, while allowing for business operation and building cash flow.
The International Finance Corporation strongly supports creating visible leasing programs to bolster an SME sector within developing nations. And I agree. It may be that existing banking and government lease programs be mass-marketed and made much more visible, or, that existing private sector wholesale/retail centers (e.g in Trinidad, Bhagwansinghs, Courts) begin a strong SME equipment/business leasing program.
One thing’s for sure, and I KNOW this for FACT after speaking to many small business entrepreneurs – SME’s have the drive to succeed in business, but do not know what help is out there and do not know how to begin to look for this help – business development consultants, a leasing program, other technical assistance. The current pattern of providing the services and expecting the SME owner to come is not truly working. We need more exposure and marketing to these SME’s of the services, leasing and otherwise, that exists. The SME keeps balance in an economy, especially when big business is in need of restructure. In that case, we can’t afford a 60% SME failure rate.
If you have any thoughts about leasing and microfinance programs, please share.
---------------------------------------------------------------------------------------------------------
Additional References:
IFC’s Access to Finance Report
http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/A2F-HighlightsReport2008/$FILE/A2F-HighlightsReport2008.pdf
Tiger Leasing Company, New York
http://www.tigerleasing.com/faq.shtml
Leasing Options: Capital or Operating Lease
http://www.cr-ny.com/Operating_vs_Capital_Lease.html
SME initiatives have not seen the sort of results desired by investors and entrepreneurs alike, as by and large most SME activity in the Latin American and Caribbean region has operated within either a traditional lending or a subsidized framework. Both ends of the lending continuum have not lent the ingenuity and creativity needed to foster a sustainable entrepreneurial community. As well, the conglomerate and expatriate structures within the regions private sector also have deflated market penetration in the traditional commercial sense for burgeoning business communities.
Two significant challenges are posed to SMEs, that of collateral and lack of technical assistance. Traditional commercial lending provides few financing options for an SME’s lack of physical collateral, and even when the loan is had, technical assistance is lacking. Many government subsidized initiatives provide numerous grants to a quota of SMEs without access to funds or collateral. However, an added approach to financing is pivotal to fostering true accountability and longevity within small and micro enterprise initiatives. The traditional business climate as it stands is in need of additions and modifications to the SME paradigm. It is here where the creation of a finance leasing sector within Latin America and the Caribbean comes into focus.
The Small Enterprising Business Association (SEBA) CEO gives recommendations for supporting SME growth in these challenging times.
1. Have agencies such as the National Entrepreneurship Development Company (NEDCO) and commercial banks provide more loans for small businesses.
2. Have agencies such as the SEBA work with Nedco and other agencies to provide more training for entrepreneurs to equip them with the skills needed to run a business.
What institutions may provide such assistance? Via e-mail information request with Minerva A. Kotei in January 2009, IFC Leasing Specialist located in Washington D.C., we see leasing is indeed the wave of the future for SME Growth. According to Mrs. Kotei:
“IFC's experience in leasing over the past 30 years demonstrates that leasing is relevant to address the key issues that hinder SMEs access to finance and facilitates the development of a strong financial sector by broadening the range of financial services. There is however no strict institutional mechanism for developing leasing. Leasing can work as part of commercial banks operations, bank subsidiary or as an independent entity depending on the institutions operational framework and market conditions. Generally, independent units can be more effective in building a leasing market while banks in SME outreach.”
The Caribbean, especially utilizing Trinidad & Tobago as a financial and developmental hub, already possesses a far more political and economic environment, rich with entrepreneurial growth to embrace new industry creation via lease financing. For example the Business Development Corporation (BDC) of Trinidad & Tobago currently has a sound leasing and technical assistance program which, to me, is underutilized.
But what exactly constitutes a leasing industry? Is it one where the banks beef up on their equipment leasing programs for SME’s? Is it one where the government implements more institutions such as NEDCO or BDC in Trinidad to offer equipment leasing options to more SME’s? Or should a private sector leasing industry be developed, where existing construction, hardware and computer/IT firms learn how to offer leasing packages to SMEs? It may be a combination of the three. A leasing program offers SME’s access to equipment and other services. While an operating leasing leave a SME with less tangible long term assets, it allows a company to have use of newer equipment without the hassle of maintenance and obsolescence, with the option of purchase at the end of a certain period. The point is to get around the lack of collateral, while allowing for business operation and building cash flow.
The International Finance Corporation strongly supports creating visible leasing programs to bolster an SME sector within developing nations. And I agree. It may be that existing banking and government lease programs be mass-marketed and made much more visible, or, that existing private sector wholesale/retail centers (e.g in Trinidad, Bhagwansinghs, Courts) begin a strong SME equipment/business leasing program.
One thing’s for sure, and I KNOW this for FACT after speaking to many small business entrepreneurs – SME’s have the drive to succeed in business, but do not know what help is out there and do not know how to begin to look for this help – business development consultants, a leasing program, other technical assistance. The current pattern of providing the services and expecting the SME owner to come is not truly working. We need more exposure and marketing to these SME’s of the services, leasing and otherwise, that exists. The SME keeps balance in an economy, especially when big business is in need of restructure. In that case, we can’t afford a 60% SME failure rate.
If you have any thoughts about leasing and microfinance programs, please share.
---------------------------------------------------------------------------------------------------------
Additional References:
IFC’s Access to Finance Report
http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/A2F-HighlightsReport2008/$FILE/A2F-HighlightsReport2008.pdf
Tiger Leasing Company, New York
http://www.tigerleasing.com/faq.shtml
Leasing Options: Capital or Operating Lease
http://www.cr-ny.com/Operating_vs_Capital_Lease.html
Tags: bank, banks, business, caribbean, collateral, development, leasing, microfinance, small, world
Comment
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Comment by Astrid Franchiska Kowlessar on August 21, 2009 at 10:03am -
Thank you for this insight and information. I will share.
Astrid Franchiska
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Comment by Rock Power Ntumba on August 21, 2009 at 6:49am -
Hi Astrid,
Thank’s for the discussion , it very interest topic but I would like you to extend your discussion further with Youth SME Initiatives if that could be okay with you.
Young people make up 40% of the worlds unemployed, and by 2015 there will be 3 billion people in the world under 25.During a downturn, young people are more likely to struggle to find employment and are often the first to lose their jobs. More than ever, supporting young entrepreneurs is an important way to reduce unemployment and lift people out of poverty. A successful entrepreneur often goes on to create more jobs in their community, and can encourage other businesses to prosper by creating demand for raw materials or a supply chain for products. Compared to adults the youth of today are almost three times as likely to be unemployed. The global number of young unemployed increased from 63 million to 71 million between 1997 and 2007.
Source: International Labour Organization
For Governments:
Supporting young entrepreneurs helps to reduce the costs to the state of supporting unemployed young people and helps produce tax revenue as well as drive economic growth. For example in March 2009 the Canadian Youth Business Foundation announced a deal with the Canadian government to support 900 entrepreneurs which they calculate will create an estimated 5,000 new jobs, C$135 million in sales revenue and C$32 million in tax revenue.
For Businesses:
Provides businesses with an opportunity to show their support for local communities, to create new market opportunities, and to enable local businesses to flourish.
Mentoring and supporting young entrepreneurs is an ideal way for successful businesspeople an way to pass on their knowledge to young people, as well as develop their own coaching and management skills.
For Civil society organizations:
Youth entrepreneurship is a vital way to tackle poverty and to bring sustainable improvement to local communities.
Source : The Prince’s youth business International
Youth business Initiative in DR Congo aims to promote entrepreneurship among young people, provides funding to the youth (18-35 years old) to help them start a new business or grow an existing one. The growing context for this growing interest and action in youth investment is clear. One of the most sobering global challenges today is the lack of decent work opportunities for young people. Over the next decade, the International Labour Organization (ILO) expects more than one billion young people will enter the global labor market. Some labor experts predict, however, that based on current trends only about 300 million new jobs will likely be created during this same period. The gap between global youth labor supply and actual labor market demand presents a great challenge for developing countries in particular. Nearly 85 percent of these job seekers will live in the developing world, where we already face the highest rate of youth unemployment (and under-employment) on record, and where young people are more than four times as likely to be unemployed compared with older workers.
Our youth investment strategy provides a framework to significantly expand the opportunities for millions of young adults, especially adolescent girls and young women, to gain access to employment and livelihood through various incentives, business coaching and/or capital for their entrepreneurial ideas.
Through partnerships with youth leaders, commercial banks, private equity funds and investors, corporations, philanthropists, international organizations, governments and local NGOs, our programmes aims to create a network of "access points" to opportunities - internships, apprenticeships, jobs, loan guarantees, capital and business coaching - for young people, ages 18-35. we seeks to support and to build a menu of practical prospects for young people, providing them with the critical next step after they complete one of the many existing training and employability programs currently offered by youth organizations. We also are targeting those young people who do not have access to or are unaware of the programs already in place.
Currently there are two projects I’m doing campaign for fundraising:
1. The Youth Microfinance Bank
2. The Youth Business Trust
If there's is a potential investors or donors interest in this projects, please contact me at rockpowerbusiness@yahoo.fr or cal me at +243 813548356.
Thank you for your attention.
Rock Power
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Comment by Astrid Franchiska Kowlessar on August 20, 2009 at 3:45pm
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Hello!
Thank you for your response. Please feel free to share as much information on the SME sector in India - there is much to learn and implement!
Regards,
Astrid F.
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Comment by Ravi Pratap Shahi on August 20, 2009 at 11:06am -
The SMEs are the best way of distribtion of wealth, but they can compete and take away a major share of larger groups, who usually controll most of the Govt officials and thus the policies.
Its a very long debate, and I being one who after doing Engineering started SME , manufacturing equipment for mines....did well to compete in market due to lower overheads, but after 34 years realise that the whole system is against it and to survive one has to do more of contineuously figting the system which is trying to put it down, rather than do positive expansion.
Will be glad to post more of advantages and my own experience with SME sector in India, if it benifits your work or some other developing country.
In my opinion even the countries like USA or UK too should promote small rather than large plants or other network...
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