Sabrina N. Gordon, Business Reporter

Paul Lalor, president of the Insurance Company of the West Indies. - File

The Paul Lalor-led Insurance Company of the West Indies (ICWI), one of the leading general-insurance companies in Jamaica, has been hired by the Inter-American Investment Corporation (IIC) to distribute loans to small and medium-size businesses.

The partnership, struck under the agency's Small Business Revolving Line (SBRL), tags ICWI as the IIC's agent in Jamaica, The Bahamas and Barbados, overseeing a US$3 million fund.

The insurance company's job is to identify and evaluate potential companies for financing under the SBRL.

"We wanted to offer a product that is simplified and streamlined, but still at the commercial standard for the English-speaking Caribbean," John Beckham, corporate projects coordinator at IIC in Washington, told the Financial Gleaner.

The agency, which is a subsidiary of the Inter-American Development Bank, also wants to bridge the gap in the market between those offering regular commercial loans and grant funding, said Beckham.

Under the agreement, ICWI will be compensated in a fee arrangement that gives the insurance company a percentage of the interest income, as well as a proportion of the income from successful closure of SBRL transactions.

Small businesses in Jamaica, Barbados and the Bahamas will be able to access loans of US$100,000 to US$600,000.

To qualify, the companies must be doing minimal sales of US$500,000 per annum, which converts at current rates to more than J$35 million. They will also be required to have a current ratio of 1.07, debt service coverage ratio of at least 1.25 per cent, net income margin of four per cent and a debt to equity ratio of not less than 70 per cent.

IIC has a similar partnership arrangement with DFL, a financial institution based in Trinidad and Tobago, as well as with its subsidiary DFLSA for small businesses in Guyana.

"Between DFL and ICWI we cover the English-speaking Caribbean countries - Bahamas, Barbados, Guyana, Jamaica, and Trinidad and Tobago - that are members of IIC," said Beckham.

SBRL, which started in mid 2006, is defined as a loan product with a streamlined approval process developed by IIC to assist small business in the acquisition of equipment and working capital for their business operations.

Straight forward methodology

"IIC recognised the need to come up with a straightforward methodology to deliver loans to small businesses, not so much on a commercial basis, but also working with them providing technical support in areas which are needed," said Beckham.

He would not comment on the level of funding available for the programme's regional operation, but said it comes from IIC's general resources and lines of credit from the international market, as well as contributions from donor countries such as Korea and Austria, with negotiations under way for other sponsors.

Programme expansion

However, the Financial Gleaner has determined that the fund is well below US$16 million based on Beckham's comments that the immediate plans are to build it to that level under plans to expand the programme to another two Latin American countries.

The donors are expected to underwrite some of the transaction costs relating to the more technical aspects of assessment and evaluation of loan applicants.

The financing approved by ICWI will be vetted by IIC and administered for a period of three to five years on a fixed interest rate over the life of the loan, with lending rates to be determined per transaction.An appraisal fee will also be charged, but this is also still to be determined.

"I don't expect this appraisal cost to be more than US$500 based on experience from other markets," said Beckham, adding that for IIC the fee signals the seriousness of the applicant in accessing the product.

Additionally, collateral in the form of fixed to movable assets, as well as personal guarantees on the part of the borrower will be required.

ICWI will work with IIC to close and disburse loans, as well as supervise the loans once issued to ensure repayment.

Loan approvals are expected to take five working days. The funds are then disbursed by IIC to ICWI which onlends to the companies.

The loans are recorded on the books of IIC.

The deal with ICWI was struck last November 20, but implementation of the programme won't occur before March of this year, and is to be preceded by training sessions for the insurance company's staff by IIC, scheduled for February.

Transactions

The financing agency projects that for this year there will at least be four transactions valued at US$800,000 to US$1.2 million.

The SBRL programme is currently operating in Costa Rica, Honduras, Nicaragua, Paraguay and Uruguay and targets exclusively small private companies operating in agribusiness, manufacturing, wholesale, retail and the construction sectors, among others that contribute to the economy.

The corporation plans next to expand the SBRL into Bolivia and El Salvador.

sabrina.gordon@gleanerjm.com