Suriname: Improving Access to Finance for SMEs
description
Transcript of Suriname: Improving Access to Finance for SMEs
A Roadmap for Action
W. Bernard DrumJanuary 17, 2013
Purpose of Today’s MeetingBriefly 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 StudyInitiated 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 BackgroundSolid economic growth of 4.4 percent since 2000Fiscal surplus of 1 percent of GDP in 2011Debt at low level of 17.6 percent of GDPBut economy highly dependent on commodity
exportsEconomic diversification is a top priorityLarge companies dominate in mining, banking, agro-
processing and tradePrivate sector includes up to 20,000 SMEs, mainly in
retail, trade, transportation and servicesMore 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 2010Compete Caribbean Private Sector
Assessment Report 2012
Main Findings of these Recent reportsGCI ranks Suriname 114 out of 144 countries
Main constraints government bureaucracy corruption access to finance
Doing Business ranks Suriname 164 out of 185 countries Main areas of poor performance are
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 asInadequately educated workforceCustoms and trade regulationsAccess to finance
Compete Caribbean PSAR cites the need to improveAccess to financeProperty rightsTransaction costs for trade Labor markets
Priorities identified to improve the business environment
Identify and target priority sectors for developmentpromote clusters, linkages, innovation and new
technologiesStrengthen the institutional framework for
competitiveness including improved interagency coordination, public private dialogue and investment promotion
Implement business regulatory reformTarget MSMEs for development, strengthen MSME skills
and business associationsImprove the corporate tax structureImprove corporate governanceImprove access to finance, especially for SMEs
(identified as a key constraint in all the reports)
Banking sector performanceGood performance on capital adequacy (12 per
cent), 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 infrastructureSector is highly concentrated with 80 percent of
assets in top three banksState ownership predominatesNo formal credit information sharing mechanismNo movable assets registryClearing and settlement and POS/ATM
infrastructure relatively well developedNBFS not significant as a source of finance for
business with the exception of informal lending
State Sponsored Credit LinesA 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 StudyCentral Bank reserve requirements – 25 percent
for domestic currency and 40 percent for forexLoans 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 proposalsWeaknesses 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
RecommendationsCreate a private credit bureau
Independent ownershipComprehensive sharing of all credit
information Wide coverage of credit sourcesUse internationally available expertiseConsult fully with the public to ensure success
Continued:
Recommendations (continued)Strengthen the secured transactions regime
and create a movable assets registryReview the legal framework governing property
rights and collateral and make changes where necessary
Design and implement a collateral registry 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 proposalsEngage all stakeholders and complete a study of
supply and demandAvoid generic training and focus on specific needsDelivery it in a market friendly way through
private providersEnsure cost recovery through beneficiary
contributionsApply 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 itLikely focus will be on SME lending skills such
as: 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
instrumentsTo promote the stock market complete a review and
update corporate governance laws, regulations and practices
Create a new code of good corporate governance Improve financial disclosure Enhance the roles and compositions of boards of directors Increase CEO and director accountability
Enact a new capital markets lawReview and improve legislation impacting the creation of
venture capital companiesReview 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 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 operationBeneficiaries should be SMEs who should be required to
provide collateral or other securityParticipating financial institutions should be required to
cover a share of the risks
Thank you