The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Corporate loan rejection rates in The Bahamas are double those in other Caribbean countries, it has been revealed, resulting in financial technology (Fintech) being deployed to boost capital access.

An Inter-American Development Bank (IDB) paper on the $1.3m Accelerate Bahamas initiative, which is designed to further boost support for micro, small and medium-sized enterprises (MSMEs), said the planned Fintech platform will enable start-ups and entrepreneurs to “engage” with potential equity and debt financing partners.

The “system algorithm” will match an investors’ risk profile/investment criteria with entrepreneurs in a “first of its kind for the Caribbean”, with all parties “vetted” by the Small Business Development Centre (SBDC) and relevant financial regulators. The former will also continue to work with financing recipients to ensure all obligations and financial milestones are hit.

“Bahamian SMEs and start-ups will be able to engage the SBDC through the platform to connect with financial intermediaries for loans, and investors for equity funding, allowing remote interaction, thus avoiding unnecessary travel which is expensive in an island country,” the IDB paper said.

“Investors who are interested in providing capital to these businesses will upload a company brief including their risk profile and investment criteria, and will be vetted and pre-approved by the SBDC and the financial regulator.

“The system algorithm will match investors and entrepreneurs based on the investor’s risk appetite and investment criteria, and notifications will be triggered to both investors and businesses of a match created.”

The IDB paper promised that all data on the Fintech platform, which it said promises to create an “entrepreneurial ecosystem”, would be safeguarded in line with United Nations (UN) data protection and privacy standards.

“Data from SMEs and start-ups will be uploaded considering users’ privacy...., as well as participating funders’ data needed on companies to screen potential investees,” it said. “For example, banks’ funding SMEs usually require a number of years in business, and certain financial ratios, which may vary for riskier sectors such as restaurants.

“This Fintech platform will be the first of its kind in the Caribbean with the ability to have a closed loop of approved investors fully vetted by the SBDC and the financial regulator(s). This solution will assist with the visibility of loan serving as it seeks to improve the corporate governance of the businesses using the platform in their reporting requirements and business management.”

The Fintech platform has been deployed in an effort to overcome the problems Bahamian SMEs frequently encounter when it comes to accessing adequate and timely financing, an issue rated second only to “an inadequately educated workforce”.

“Loan application rejection rates are very high in The Bahamas – nearly 85 percent, which is much higher than in Barbados (35 percent), Belize (42 percent), or Jamaica (55 percent),” the IDB paper said.

“The Bahamas financial sector’s restraint from lending to SMEs stems from two main problems, which substantiate the low risk appetite from the banks and affect the risk premium in the interest rates. One, the lack of sufficient collateral to provide coverage for a loan, and two, the lack of information provided by SMEs that is required for a loan, including appropriate accounting records, financial statements and adequate business plans, hinder a bank’s risk assessment and lead to uncertainty on the project’s expected returns and the paying capacity of the borrower.

“Commercial banks are cautious in making new loans and typically do not prioritise SMEs, preferring mortgages, consumer loans or government financing. Observing the sectoral distribution of credit in the banking system, 78 percent is categorised under personal loans, even though some of these may include those destined for small business purposes, and 12.5 percent commercial loans.”

The IDB paper, adding that Accelerate Bahamas was designed to benefit 2,500 local businesses, added: “The project seeks to address the lack of access to finance by SMEs and start-ups in The Bahamas, which stems from high levels of business informality, poor record keeping, limited capacity for business management and innovation, and inadequate support provided to these businesses.

“The beneficiaries of this project will be 2,500 businesses, including many companies with female participation in ownership. Most of the business that would benefit from the project will be start-ups with less than five employees and small enterprises with five to nine employees, and will include medium enterprises as well with up to 99 employees, but no large enterprises.”