By Dr. Terrence Campbell MP (APNU)- After almost forty years as an entrepreneur in Guyana, I know firsthand how difficult it can be for small and medium-sized businesses to access financing.
In 2005, when I sought financing to launch Church’s Chicken in Guyana, one local bank told me that the restaurant sector was already too crowded. That experience was not unique. For many entrepreneurs, particularly those without substantial collateral or political connections, commercial bank financing remains difficult to obtain.
That is why I welcome the Government’s decision to establish the Guyana Development Bank. But welcoming the idea does not mean accepting a flawed Act. Guyana needs a development bank, but it must be a development bank, not another institution subject to political control.
The irony is that the idea is hardly new. In 1973, the PNC Government under Linden Forbes Sampson Burnham established the Guyana Agricultural and Industrial Development Bank (GAIBANK) to provide financing to farmers and businesses at reasonable rates.
GAIBANK became an important source of credit to Guyana’s agricultural and industrial sectors. Even the PPP’s then Minister of Finance, Asgar Ally, acknowledged in 1995 that GAIBANK had been an important source of credit and that many large businesses owed some of their success to financing obtained from the institution. Yet the PPP Government closed GAIBANK in 1995.
Today, almost thirty years later, the PPP is resurrecting the very institution it once abolished. There is nothing wrong with learning from the past. Indeed, if the Government has finally recognised that Guyana needs development financing, that should be welcomed. But we must learn from both GAIBANK’s successes and its weaknesses.
The proposed Guyana Development Bank is intended to support small and medium-sized enterprises through loans and technical assistance. Unfortunately, the Act contains several serious deficiencies.
The first is the proposed $3 million loan ceiling. That amount may be useful to a micro-enterprise, but it is hardly transformative for a genuine small or medium-sized business.
Consider a business employing 25 people at the private-sector minimum wage of $60,000 per month. Its monthly payroll alone would be $1.5 million. Three to six months of payroll would therefore cost between $4.5 million and $9 million before paying rent, utilities, inventory, transportation, taxes or any other operating expenses.
A $3 million ceiling therefore risks creating a bank for micro-businesses while leaving larger small businesses and medium-sized enterprises largely underserved.
The Act should also provide a clearer definition of a medium-sized business and establish safeguards to prevent borrowers from circumventing the loan ceiling by obtaining multiple loans through different companies.
More fundamentally, the governance structure is troubling. The Minister appoints the entire Board of Directors, including the Chair and Vice-Chair. That creates the potential for political interference in an institution whose success will depend on independent and commercially sound lending decisions. A development bank dispensing billions of dollars cannot become an instrument of political patronage.
The Board should therefore include independent representation, including Opposition nominees and representatives of the banking and professional communities. Gender and ethnic diversity should also be required. There is nothing preventing the Minister from inviting Opposition representation as an act of political maturity even prior to an amendment of the Act.
The same principle should apply to lending decisions. The Act should have established an independent Credit Committee to protect lending from political pressure and strengthen risk management. Again, there is nothing to prevent the Board from establishing such a Committee.
The proposed $40 billion authorised capital makes strong governance even more important.
The Government also needs to resolve the contradiction between providing loans with little or no collateral and potentially no interest, while simultaneously requiring the Bank to be financially sustainable. There is no such thing as risk-free lending. The experience of some microfinance institutions (Scotia Enterprise, Development Finance Limited South America, Dolla Financial Services Limited) in Guyana demonstrates that success requires expertise, disciplined credit assessment and effective collection systems.
This is why collaboration with experienced institutions can be valuable. Guyana has organisations such as IPED that have decades of experience in microfinance and have demonstrated that responsible lending to small entrepreneurs is possible.
Oversight must also be strengthened. A $40 billion institution carrying substantial credit risk should not rely solely on annual auditing by an already stretched Auditor General’s Office. An amendment to the Act, granting the Bank of Guyana an oversight role, should be pursued post haste.
Finally, the legislation should have demanded reporting on measurable performance targets: the number and categories of loans issued, jobs created, geographic distribution of lending, and the level of non-performing loans. Annual performance reporting, along these lines, should be mandatory.
There should also be an explicit prohibition against discrimination in lending on the basis of ethnicity, gender, age, disability, religion, sexual orientation or political affiliation.
Guyana needs a development bank. Entrepreneurs need access to affordable capital. Our commercial banks must also be encouraged to devote greater resources to SMEs rather than focusing almost exclusively on maximizing profits.
But development financing must not become political financing. In neighboring St. Vincent Cde. Ralph Gonsalves, a close friend of the PPP Government, quite recently expressed fears of a proposed development bank on that island becoming “an insolvent political piggy bank” ( https://www.stvincenttimes.
I support the resurrection of GAIBANK in modern form. What I do not support is resurrecting the institution without resurrecting the principles of independence, accountability, sound governance and responsible lending that must accompany it.
Guyana deserves a Development Bank that belongs to the nation and not to whichever political party happens to occupy the Government benches.
