Business

The Billion-Dollar Question: How to fill Belize’s Credit Gap?

There are some things that become so cliché that the reminder of their existence is often void of its original effect. This is true for several things, including the discussion on how to accelerate business growth in Belize. More specifically, we often hear the phrase: “Micro, Small and Medium-sized businesses (MSMEs) are the backbone of an economy”. This statement is true because MSMEs easily account for at least 60% of total employment in the global economy, with the Belizean context not being much different.

But here’s the thing. While MSMEs contribute more than 60 percent of the jobs, and are responsible for approximately four out of every five new positions created, this class of businesses tend to also be the least likely to have access to credit. A 2015 World Bank report painted the situation this way:

“SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises. About half of formal SMEs don’t have access to formal credit. The financing gap is even larger when micro and informal enterprises are taken into account. Overall, approximately 70% of all micro, small and medium-sized enterprises in emerging markets lack access to credit.”

The lack of access to credit has created a global financing gap of approximately US $1.2 trillion, with Latin America and Caribbean countries’ credit gap being estimated by the International Finance Corporation (IFC), a part of the World Bank Group, to be between US $210 and US $250 billion. For Belize, the IFC Enterprise Finance Gap Database estimates a financing gap of about US $1 billion.

Whether we look at things from a global, regional or local perspective, it becomes quite evident that this particular constraint is no minor problem. Fundamentally, if MSMEs—again, recognized as the chief job creating sector and a significant contributor to Gross Domestic Product (GDP)—cannot access the requisite financing to fund their operations, then by extension, we ought to expect slow changes in unemployment levels and economic growth.

But if the loans are not flowing to the MSMEs, where are they going? According to the Central Bank of Belize (CBB), approximately 28 percent of loans are distributed to “building and construction”, another 21 percent for personal loans, and roughly 15 percent for real estate. While there’s obviously some overlap with businesses, on face value it is still noteworthy that these three “sectors” account for almost two-thirds of the loans and advances as of June this year.

This same CBB data, on the other hand, shows that the manufacturing sector accounts for a little above two percent, while the tourism and agriculture sectors are closer to six and eleven percent, respectively. Distribution accounts for about eight percent and professional services and transport both average less than three percent.

With figures like the ones mentioned above, it is not surprising that in the World Bank’s Enterprise Survey (2010) two-thirds (66%) of the respondents identified access to credit as a “major constraint” to business. It is also noteworthy that this average was significantly above the Latin America & Caribbean averages of 29.2 percent and 26.2 percent, respectively. Without a doubt it is necessary for the private sector, working in collaboration with the public sector where necessary, to look for ways to begin bridging the credit gap. The billion-dollar question, however, remains as to which mix methods may be most useful. This is a point we pick up on in next week’s “The Business Perspective”.

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