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The Economic Impact of Small Business and role of Credit Guarantee in HaitiThe financial crisis offers several opportunities that the Government of Haiti should capitalize on designing a strategy to stimulate the economy and reduce the high interest rate from 40% to 5% per year. In addition, the Government should be increasingly leveraging variants of Credit Guarantee mechanisms to promote entrepreneurial growth in the Small and Medium-sized Enterprises (SMEs) sector in Haiti. Small and Medium-sized Enterprises (SMEs) are generally one of the main drivers of the economic recovery, because SMEs contribute substantially to GDP and account for a large number of jobs for local people. Access to financial sources is important to the operations of firms, especially for newly established SMEs which don’t have sufficient collateral and reliable financial records to ascertain that they represent acceptable credit risk. Without external financing, SMEs would not be able to expand their business or even to survive in today’s highly competitive business environment. Can a credit guarantee really contribute to the growth of the Haitian economy? If it does, how does a credit guarantee play a role that affects an economic sector in terms of employment opportunities and the financial cost of SMEs? To stimulate lending or facilitate additional credit to SMEs, the Government of Haiti should set up a specialized financial institution that could have such name “Haiti Small Business Credit Guarantee Corporation” (HSBCG) which can be under the supervision of Ministry of Finance. The main objective of Haiti Small Business Credit Guarantee Corporation is to assist SMEs that seek a guarantee for the unsecured portion of loans in obtaining adequate credit from financial institutions. The institution could provide the following credit Guarantee scheme: Risk participation which will allow Haiti Small Business Credit Guarantee Corporation to share risk with financial institutions. To provide SMEs with opportunities for growth and prosperity, certain mechanisms are needed to correct an imperfect credit market. Viable business initiatives have never been a sufficient reason for most commercial financial institutions to advance credit and finance facilities to small entrepreneurs. The small business sector has been therefore viewed as a risk sector in which formal financial institutions have not been ready to trend without security cover. The Haiti Small Business Credit Guarantee Corporation would have to facilitate and assist young first generation entrepreneurs and those from disadvantaged sections of society in rural and other less developed areas to have access to commercial loans from formal financial institutions, providing an enabling environment for the millions of young Haitians to participate in the nation building task for development. Haiti is referred to as the sick man of Caribbean and it is no surprise to say that the Haitian economy is at its lowest level, Small and Medium-sized Enterprises can hardly be seen in the Haiti landscape. How can you possibly do business in a country with interest rate of as high as forty percent (40%) annually, where inflation rate is more often than not double digit, where capital flight instead of foreign investment infusion is the order of the day, and where political instability added to the chaos of the times? Small and Medium-sized Enterprises (SMEs) are generally one of the main drivers of the economic recovery, because SMEs contribute substantially to GDP and account for a large number of jobs for local people. Access to financial sources is important to the operations of firms, especially for newly established SMEs which don’t have sufficient collateral and reliable financial records to ascertain that they represent acceptable credit risk. Without external financing, SMEs would not be able to expand their business or even to survive in today’s highly competitive business environment. Credit guarantee programs can address several barriers to loan access by SMEs. These barriers include: The high transaction cost of small loans The perception of high degree of risk in lending to SMEs The lack of traditional collateral as often required by financial institutions. Thus, three (3) government financial institutions should be set up to cater to the financing need of Haiti business enterprises particularly on credit guarantees namely: - Haiti Small Business Guarantee and Finance Corporation (HSBGFC) - Haiti Rural Credit and Guarantee Corporation (HRCG) - Haiti Trade and Investment Development Corporation (HTIDC) Features of the Credit Guarantee Programs: 1) Haiti Small Business Guarantee and Finance Corporation (HSBGFC) attached to the Ministry of Commerce and Industry and mandated to provide financing and guarantees to the country’s SMEs. HSBGFC should operate on a basis of risk sharing with eighty percent (80%) Accredited Financial Institutions (AFIs) composed of commercial, development, industrial and rural bank. It guarantees loans of SMEs with the Accredited Financial Institutions (AFIs) against risk of non-payment by the borrowers. 2) Haiti Rural Credit and Guarantee Corporation (HRCG) attached to the Ministry of agriculture mandated to accelerate the flow of investments and credit resources into the countryside so as to trigger the vigorous growth and development of rural productivity, employment and enterprises to generate more livelihood and income opportunities. HRCG, in support of the government’s effort to address these problems and in coordination with other participating agencies, could come up with various programs on agri-fishery and other related activities to sustain and intensify agricultural production specifically on grains commodities, fisheries/aquaculture, livestock and poultry, high value commercial crops, agri-forestry projects and other livelihood projects. It would introduce an innovative credit mechanism that is collateral-free and would give better access to farmers as a means to improve agricultural production, increase yield and augment farm level income. 3) Haiti Trade and Investment Development Corporation (HTIDC) attached to the Ministry of Finances with the goals to improve a wide range of financial services such as loans, guarantees, credit insurance and technical assistance services to small, medium and large exporters. Credit guarantee in Haiti can assume a pivotal role in promoting the SMEs growth and development. We believe that the credit guarantee programs in Haiti primarily can operate in a relationship of trust and confidence among the parties involved in the system (The guarantor, the financial institutions and the borrowers). We believe that trust and confidence derive not only from our ability to pay calls on guarantee but from a vision that can share with our brothers and sisters in Haiti. Behind this vision is our philosophy of service, the best way to help SMEs is not to take their losses, but to do business with them in a manner that benefit both. Rubrique: Economie Auteur: Michelet Montina | Date: 13 Sept 2009 |
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