Transcript Suriname: Improving Access to Finance for SMEs

A Roadmap for Action
W. Bernard Drum
January 17, 2013
Purpose of Today’s Meeting
 Briefly summarize the findings and recommendations
from the recent study on access to finance for SMEs in
Suriname
 Obtain feedback on the study report from a small
group of important stakeholders. This will help in
preparing a final version of the report for wider
dissemination
 Identify areas of consensus and establish priorities for
action
 Identify concrete next steps
The Study
 Initiated in September 2012 by CUS in the Office of the
Vice President, with the support of IDB’s Compete
Caribbean Project
 Work done by consultant W. Bernard Drum with
support from CUS staff
 Consisted of (i) desk research and (ii) ten days of field
research in Suriname in October 2012
 Analysis and recommendations draw on Suriname
specific findings and on international best practices
Suriname Economic Background
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Solid economic growth of 4.4 percent since 2000
Fiscal surplus of 1 percent of GDP in 2011
Debt at low level of 17.6 percent of GDP
But economy highly dependent on commodity exports
Economic diversification is a top priority
Large companies dominate in mining, banking, agroprocessing and trade
 Private sector includes up to 20,000 SMEs, mainly in
retail, trade, transportation and services
 More than 25 percent of workforce employed by Govt.
Suriname Business Environment
Recent Reports
 GEF Global Competitiveness Report 2012-2013
 World Bank/IFC Doing Business Report 2013
 World Bank Enterprise Survey 2010
 Compete Caribbean Private Sector Assessment
Report 2012
Main Findings of these Recent
reports
 GCI ranks Suriname 114 out of 144 countries
 Main constraints
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government bureaucracy
corruption
access to finance
 Doing Business ranks Suriname 164 out of 185 countries
 Main areas of poor performance are
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protecting investors,
enforcing contracts,
starting a business,
registering property
getting credit
resolving insolvency
Main Findings of these Recent
Reports (continued)
 WB Enterprise Survey cites the top three constraints
experienced by Suriname enterprises as
 Inadequately educated workforce
 Customs and trade regulations
 Access to finance
 Compete Caribbean PSAR cites the need to improve
 Access to finance
 Property rights
 Transaction costs for trade
 Labor markets
Priorities identified to improve the
business environment
 Identify and target priority sectors for development
 promote clusters, linkages, innovation and new technologies
 Strengthen the institutional framework for competitiveness
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including improved interagency coordination, public private
dialogue and investment promotion
Implement business regulatory reform
Target MSMEs for development, strengthen MSME skills and
business associations
Improve the corporate tax structure
Improve corporate governance
Improve access to finance, especially for SMEs (identified as a
key constraint in all the reports)
Banking sector performance
 Good performance on capital adequacy (12 per cent),
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return on assets (1.9 percent) and return on equity (27
percent)
Ongoing proactive measures by the Central Bank to
improve supervision
Deposits are around 51 percent of GDP – near the regional
average
Interest rate spreads around 5 percent for local currency –
near or below the regional average
But credit to the private sector is only 23 percent of GDP,
and Suriname ranks as one of the lowest in the region on
this criterion
Banking sector structure and
infrastructure
 Sector is highly concentrated with 80 percent of assets
in top three banks
 State ownership predominates
 No formal credit information sharing mechanism
 No movable assets registry
 Clearing and settlement and POS/ATM infrastructure
relatively well developed
 NBFS not significant as a source of finance for business
with the exception of informal lending
State Sponsored Credit Lines
 A number of internationally financed credit lines have
been extended through the commercial banks over the
last 30 years, in many cases with NOB as the apex
institution
 Anecdotal evidence is that the performance of these
credit lines, particularly the earlier ones, was mixed
 Recent announcements of trade guarantees for SMEs
through DSB
 Plans are on the table for setting up a partial credit
guarantee scheme
Main Access to Finance
Impediments Identified in the
Study
 Central Bank reserve requirements – 25 percent for
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domestic currency and 40 percent for forex
Loans secured mainly by real estate – no movable assets
registry or developed secured transactions regime
Lack of a formal credit information sharing or reporting
mechanism
Historical focus of the commercial bank lending on larger
borrowers
Inadequate financial reporting regulations and practices in
Suriname
continued
Main access to finance
impediments identified in the
study (continued)
 Lack of skills in SMEs in the preparation of business
plans and loan proposals
 Weaknesses in the investor protection regime that
impede the development of the capital markets
 Little use of leasing or factoring and the absence of an
enabling environment to encourage the use of these
instruments
 Little or no venture capital available
Recommendations
 Create a private credit bureau
 Independent ownership
 Comprehensive sharing of all credit information
 Wide coverage of credit sources
 Use internationally available expertise
 Consult fully with the public to ensure success
Continued:
Recommendations (continued)
 Strengthen the secured transactions regime and
create a movable assets registry
 Review the legal framework governing property rights
and collateral and make changes where necessary
 Design and implement a collateral registry
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to cover all movable pledged collateral in Suriname
Limit information to security interests
Online and accessible at all times
Secure
Subject to data entry by registrants
Recommendations (continued)
 Strengthen accounting and auditing rules and standards
 Draft an Accountancy Act to include institutional and
accounting reforms
 Strengthen capacity of SUVA and improve training of
accountants
 Establish a Securities and Exchange Commission and
continue to improve Central Bank supervision
 Phase in new reporting requirements at a rate
compatible with development of accounting capacity
Recommendations (continued)
 Support training of entrepreneurs in business
planning and loan proposals
 Engage all stakeholders and complete a study of supply
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and demand
Avoid generic training and focus on specific needs
Delivery it in a market friendly way through private
providers
Ensure cost recovery through beneficiary contributions
Apply rigorous monitoring to ensure desired targeting
Recommendations (continued)
 Support training of bankers in SME lending
 Assess supply and demand for such training and
determine its scope
 Select an institution to deliver it
 Likely focus will be on SME lending skills such as:
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Risk appraisal and management
Loan products and pricing
Collections
Information systems
Compensation and incentives for loan officers
Recommendations (continued)
 Develop additional sources of finance and financing
instruments
 To promote the stock market complete a review and update
corporate governance laws, regulations and practices
 Create a new code of good corporate governance
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Improve financial disclosure
Enhance the roles and compositions of boards of directors
Increase CEO and director accountability
 Enact a new capital markets law
 Review and improve legislation impacting the creation of
venture capital companies
 Review the laws and tax rules governing leasing and factoring
Recommendations (continued)
 Complete a detailed cost benefit analysis of current
proposals for a credit guarantee facility. If a decision is
taken to go ahead:
 Establish monitoring and evaluation criteria in advance and
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apply them rigorously
Building of capacity, particularly risk management skills, within
lending institutions should be a major objective
Maximize involvement of private institutions in implementation
Central Bank should supervise the operation
Beneficiaries should be SMEs who should be required to provide
collateral or other security
Participating financial institutions should be required to cover a
share of the risks
Thank you