Financial system too dependent on commercial banks – Persuad

By Anesta Henry

Barbados' financial system is too dependent on commercial banks, unbalanced, narrow, and not good at mobilizing domestic savings for domestic investment, Professor Avinash Persuad said.

The Prime Minister's Special Envoy on Investment and Financial Services holds the view that a heavy dependence on the banks must change, if the economy is to grow, and new jobs created.

Speaking at the 20th anniversary dinner and awards ceremony for FundAccess, at Accra Resort, last night, Professor Persuad, also suggested that Barbados' bank loans to bank deposits are too low for macroeconomic stability and growth.

"We need other, perhaps new institutions, to take the risks that we need to grow our economy. We need to strengthen our financial ecosystem," he said.

"We have the problem of missing markets, missing financial institutions, missing segments of a financial ecosystem. And that is where the regulatory Sandboxes and Trust Loans that were announced over the past few months, fit in with Fund Access. They are all a critical part of a plan to build a new ecosystem, better fit to mobilize domestic savings for lending to the new economy."

The Professor explained that in a financial ecosystem fit for purpose, the banks would still have a central role. He noted that banks are an integral part of the payments system, a transfer of account from one bank to another, and cannot be questioned if the payment system is to work day in and day out.

He said that as a result of the unique role they play in settlement of payments, banks will always be unique lenders, and noted that they have to be, as there is no amount of cajoling that will or should change that.

"We can help them to become broader lenders, through using the convening power of government to establish, for instance, one national credit bureau. The Ministry of Economic Affairs is working on that. But we need other institutions in our ecosystem to take risks," he said.

He argued that the next segment of the ecosystem should be credit unions and their modern-day equivalent, peer-to-peer lenders, that are non-bank savings institutions, not critical to the payments system, and are in a position to take more risks.

According to Professor Persuad, next year the Financial Services Commission will be developing new regulations for peer-to-peer lenders that will encourage and regularize the industry. The regulatory Sandbox launched in November, is there to support other innovative solutions to fill the space beside peer-to-peer, he said.

"And next year, we plan the first in the world, multi-jurisdictional sandbox, the idea being that if you test a new product in our sandbox in Barbados, you can sell that product in another jurisdiction because we have mutual regulation of our sandboxes," he said.

The Special Envoy suggested that the next level of risk-taking needs another type of institution, the space currently inhabited by FundAccess - businesses denied access to loans from the banks because they have insufficient collateral to borrow.

He suggested that this is a market far in excess of the capacity of FundAccess, and informed, that going forward, there is a need to consider new ways in which to leverage up the capital of FundAccess.

Professor Persuad said discussions are currently being held with international multilateral development agencies on boosting the Fund's capital, and new ways are being looked at to leverage or blend the amount of capital the Fund puts in with private and public sector lenders and augment the Fund's business development services and training.

"Below FundAccess is another market, one we are trying to reach with Trust Loans. Individuals with no collateral but good business ideas. Very early start-ups. We offer borrowers small loans and only reward them with more significant credits if they repay on time. They build their social capital with their repayment history, and we give them greater access to funds. We trust them. If they repay that trust, they grow," Professor Persuad informed.

FundAccess Chairman David Simpson said that in 20 years, the Fund has disbursed $61,345,728 in loans to 1,539 businesses/clients, representing 1,924 new and refinanced loans, resulting in 2,323 jobs created. Simpson said that there is not an industry or service that the agency has not financed.

The Board and management, in recent years, to ensure that no one is left behind, created a range of packages, Business Boost, Facilitator, Innovator, Pro, Transport and others, up to a maximum of $150,000 per loan.

"This is the only lending agency that even when you are declined, will provide step by step guidance as to what you need to undertake to be successful when you re-apply. When we decline a loan, it is often the 4th or 5th option, after all efforts have been expended to provide approval.

"I am privileged to stand before you tonight as we culminate our 20th anniversary celebrations, to report to you that in 2018, as at November 30, FundAccess has disbursed $5,418,153 in loans for the calendar year, surpassing only two other occasions in history that in excess of $5 million was disbursed in 2011 and 2012. I am confident that 2019 will see us surpassing the 6 million mark," Simpson said.

Long standing staff members, as well as persons who at all cost, contributed to the growth and development of FundAccess, were awarded for their contributions.

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