By K.C. Soares, Contributor
IN MY last article I proposed the establishment of a financial growth fund to assist growing small and micro-enterprises (SMEs). In response to this suggestion, I have received many requests to outline in more detail what exactly is being proposed.
The financial growth fund that I am proposing is simply a fund from which SMEs can easily get required funds to not only expand their business operations but also to put in place the necessary requirements in order to be compliant with world standards. This fund is necessary as it is extremely difficult, or in some cases impossible, for SMEs to access funds from traditional financial institutions. I have in previous articles dealt with the factors contributing to this state of affairs. To eliminate this difficulty, institutions such as the Self-Start Fund and National Development Foundation of Jamaica were established. However, while I do agree that the difficulty in accessing funds is much reduced in these established institutions, there still remains some degree of difficulty. The financial growth fund should be designed to remove all difficulties in accessing loans to growing businesses. Only growing businesses should be accommodated and consequently start-up businesses and businesses with little or no potential should be excluded.
The setting-up and administration of the fund is crucial to the success of the whole programme. To this end, I suggest that there be a pool of funds subscribe to by the SMEs with inputs from the government on a ratio basis. For instance, for every dollar subscribed to the pool of funds by the SMEs the government should inject $10. The government / SME ratio would then be 10:1. One may ask - from where will the government get these funds? This is the easiest part of this proposal. Part of the funds being spent on uneconomical crops such as sugarcane, cocoa and bananas should be channelled to this fund. The remaining portion of the funds should be used to gradually phase out the crops involved. Take for instance, it has been announced that $6.3 billion will be injected into the sugar industry. What do we expect to get from this massive injection of funds? Not very much as far as I am concerned as a significant portion of these funds will be used unproductively in the repayment of debts. Sugar is on the decline and will continue to do so regardless of the amount of funds injected into the industry. This is because all the problems in the industry are not directly related to a lack of funds. The bottom line is that we cannot compete globally with this crop and consequently we should gradually phase it out. As I have said before only two factories should remain in production - Appleton Estates to produce rum and Worthy Park Estates to produce sugar for domestic consumption. Instead of putting the full amount of $6.3 billion slated for the industry, why not inject only $3.0 billion to cover social concerns and put the remaining portion towards the proposed financial growth fund? Certainly this is a much more productive way of utilising the available funds than trying to resurrect a dying industry. While I do appreciate that a reduction of funds to sugar, banana and cocoa will no doubt in the short run result in unemployment, these negative effects will be balanced out and indeed be improved by increased activity in the small business sector in the long run. We cannot just think of today. We have to plan for the future. There are some crops that have no future and it is therefore pointless making long-term plans for these crops. Clearly, the funds will be better spent ensuring the growth of enterprises that do have a future.
Space does not allow me to detail the mechanisms of this proposal. However, what I will state is that the fund will have to be administered by trained financial personnel. These will be individuals who can assess the growth of a business with and without audited financial statements. In the absence of financial statements there are aspects of a business that clearly show whether or not a business is growing. The administrators of the fund should be able to uncover these signs. Finally, the financial growth fund should not wholesale funds but should lend directly to borrowers. In so doing, interest rates will be kept to a minimum while processing time for each loan should not be over a protracted period as is the case now with some financial institutions. With proper administration from trained personnel this proposal will surely result in the growth of successful businesses islandwide.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com
