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APPENDIX 4: ANALYSIS OF SME ACCESS TO FINANCE IN EIGHT BMCs
These indicators reflect two facts regarding the country’s financial institutions. First, although liquidity is high, there is little appetite for risk-taking on the part of banks in terms of lending to private sector companies. Second, levels of financial intermediation are low, as banks prefer to keep their liquidity levels high rather than lending to firms that may face repayment difficulties for reasons beyond their control. Generally, banks consider it risky to lend to companies outside the energy sector, as such firms may find themselves unable to repay loans when external conditions change. Rather than being a problem arising from the management approach at individual banks or firms, this is a systemic issue, related to the existence in Trinidad and Tobago of an incentive framework for lending that does not facilitate financial intermediation. For instance, a presentation on “Moving Beyond Collateralized Financing” by Ram Ramesh at the 1st Caribbean Competitiveness Forum in Trinidad and Tobago noted that there was limited intermediation for venture capital, angel funding, IPO funding and government subsidies62. Nevertheless, interest rates in the country are low. In June 2014, the basic prime lending rate stood at 7.5%. As noted in section 2.2 Life Cycle System and Table 2.2: MSME Life Cycle Financing in eight Caribbean countries, Trinidad and Tobago offers a relatively robust financial system that could bolster the progressive development of SMEs. The main weaknesses in the system are: 1) the contraction of venture capital availability, the high non-performing loans (NPLs) of the National Enterprise Development Company (NEDCO), and the absence of an active junior stock exchange. The completeness of the Life Cycle financing system would be notably enhanced if the first mechanism (i.e. venture capital) is re-activated and the second (i.e. the junior stock exchange) becomes fully operational. The idea of the junior stock exchange had been strongly promoted by the Chamber of Industry and Commerce in recent years. To encourage SMEs to list, the T&T Government has legislated a 10% corporate tax rate, which is 40% of the normal rate of 25% for the first five years to SMEs listed on this market. They are required to raise capital on the exchange through IPOs with a minimum of 25 shareholders holding at least 30% of the company’s share capital. To date, however, there have been no listings (yet) on the exchange, but this was the same pattern that the Junior Exchange exhibited in its first year in Jamaica. Another major player in the financial sector is the EXIM Bank of Trinidad and Tobago, which offers a wide range of financial products to support exporters including post shipment financing (the equivalent of the factoring of receivables), pre-shipment financing (the equivalent of working capital financing), demand loan financing (for equipment upgrades), and export credit insurance (risk protection to exporters against payment default by foreign buyers). The EXIM Bank is owned by the Government of Trinidad and Tobago (GoTT) and facilitates export development, which is seen as a top priority by GoTT. According to its 2014 Audited Financial Statements, loans and other financial assets were USD 66.5 mn and accounted for 88% of total assets. Over time, the loan portfolio has therefore experienced consistent growth from USD 12 mn in 1975. How well has Trinidad and Tobago done in facilitating SME access to finance in recent years? Table A7 below summarised the allocations of loans and advances to the private sector over the six-year period 2009 to 2014. Ramesh, R., “Moving Beyond Collateralized Financing: Alternative Models based on Case Studies for the Regional Private Financial Sector”
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