By K.C. Soares, Contributor
Soares
TO BE effective in providing badly needed financial and technical support for the small business sector, there has to be a restructuring of the institutions involved.
I propose a general restructuring, encompassing all the government institutions to include the privately run National Development Foundation of Jamaica (NDFJ). It is commonly felt, especially here in Jamaica, that anything which is free or cheap, is not at all good. Therefore, free suggestions put forward by this column may be considered worthless by the powers that be.
Yet, the same powers are prepared to pay millions for the same suggestions coming from 'professionals'.
A few years ago I tendered a bid for the preparation of a study on the production and processing of an agricultural item. It was requested that the study be completed within 28 days and should cover the operations of some 20 processing plants islandwide.
Prior to the study being commissioned, my company had provided the relevant authorities with the basic background to this particular sub-sector. I informed the authorities that my company could have concluded the study within 15 days and as we already had most of the information on file our costs would be relatively nominal.
I should mention here that over 70 per cent of the entrepreneurs involved in the sub-sector were our clients and therefore all that background information was already on our files.
For obvious reasons, persons inquiring into the affairs of a company in order to provide information for the government will not get the same reception as one would who is gathering information for the accessing of funds for that company.
We did not get the contract and the feedback we got from the authorities was that we would be doing the job too quickly and our cost was too cheap. The contract was granted to someone else who took over 300 days to complete the job and the cost? Yes, you guessed it.
Anyway, for what it's worth I am now suggesting a general strategy. A more detailed plan specific to each individual institution will follow at a later date.
The first thing to be done is the setting up of an Asset Management Company. All the non-performing loans (NPL) from all the institutions should be transferred to this Asset Management Company. It will be asking too much of the present management to collect the NPL which in some institutions is as high as 70 per cent. One of the problems in collecting these NPL is the feeling among some borrowers that it is government's money, therefore it does not have to be repaid.
The structure and the administration of the company will be presented in another article. The recruitment process for this company will be crucial and this will be discussed at length at the time of presentation of the follow-up article.
The new company is expected to effectively deal with the NPL problem now plaguing all these institutions. The institutions should then restructure themselves along market-oriented lines so as to better serve customer needs, improve efficiency and prepare themselves to face competition. Then to improve asset quality (loans) the institutions will have to strengthen their management, develop new
products and services and re-organise their information technology (IT) systems.
As far as present management in these companies is concerned, it is often voiced that the institutions do not have the resources to attract high quality managers. I do not share such sentiments.
I firmly believe that the institutions involved can be more efficiently run with only 60 per cent of present staffing. In light of this observation, 40 per cent of the staff can easily be dispensed with and the resources normally accommodating this group be channelled into the attraction of higher quality management. In other words, if one institution now employs 100 persons, I believe 60 persons can effectively and efficiently run that institution. The services of the 40 are then dispensed with. The money paid as salaries and any benefits to these 40 persons is now available to improve the salaries of the remaining staffing. In so doing, a higher salary can be offered to say the managerial post, which would tend to attract higher quality managers.
If you have been following my articles you will be aware of my view that small businesses continue to be a conduit for economic opportunities for many displaced workers.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com
