Govt to push new bill in Parliament to unlock capital for local businesses

…bill will allow borrowers to pledge moveable collateral

Recognising that access to finance remains a hurdle for many businesses in Guyana, the People’s Progressive Party/Civic (PPP/C) government has revealed that it will soon be bringing legislation to the National Assembly to address this issue.
With the United Kingdom (UK) currently fielding a trade mission to Guyana, prospective investors got a chance to hear from and pose questions to Finance Minister Dr. Ashni Singh, on Guyana’s investment climate, during a ceremony to welcome the delegation at the Marriott Hotel on Monday.
One such question was posed by Chief Executive Officer (CEO) of FT Farfan Limited, Andrew Crooks, whose company is a supplier of JCB equipment. He questioned why accessing financing from banks for construction equipment is so hard in Guyana and whether this is likely to change.
“The challenge that we’re having is most of the dealers of equipment have to do their own financing. So, we do a bill of sale process and we finance the local Guyanese companies. The banks aren’t stepping in to do that financing. So, we just want to understand what the future is and how we can unlock capital for local construction companies and if we can get the posture of the banks to change, to get that capital unlocked.”
“Because right now, they want 50 per cent down. The collateral they want is land. The interest rates are high. So, most of the Guyanese nationals are not going through the banking sector. And it’s a big challenge for us. We just want to understand,” Crooks said.
The finance minister acknowledged that access to financing is an issue, one that is compounded by what he called a primitive traditional financial sector. According to Singh, more flexibility is needed from the financial sector, to look beyond land as potential collateral. He noted that financial receivables, contracts and invoices should also be accepted by the banking sector.
“The banking sector has to make the transition to a more modern type of operation. And I don’t think they deny this too. I’ve had multiple meetings with the financial and non-financial sector to address this issue. So, you’re absolutely correct about the need for modernization in the financial sector.”
“The opposite side of the coin is that potential borrowers, because the bank is in the business of making money too. And I don’t imagine that they don’t want to lend. So, I’ve also in the same breath, said to non-financial private sector, that they also need to demonstrate that they are a good credit risk,” the finance minister explained.

Moveable collateral
According to Singh, the reality is that banks will not lend to persons unless they have a credible business plan and a sound track record. Dr Singh assured that efforts are underway to introduce legislation that will enable easier access to financing, including options for using movable collateral such as inventories and goods.
“We are also working on putting in place legislation that will lend itself more easily to moveable collateral being pledged. So, we have moveable collateral, securities bill that we’re going to be taking to parliament very shortly. That will make it easier for banks to accept moveable collateral as security for loans. That bill will, I expect, go to parliament very likely at the next sitting of parliament.”

Need for more
Similarly, the finance minister also acknowledged the need for more advancements on the financial securities side. He noted that companies looking to raise capital by going public, must be cognizant of what is expected from them. That, according to Singh, is the cost to seeking funding from the public for one’s company.
“Here again too, those who are seeking to raise capital will have to ensure that they go to the market understanding first of all the discipline that is required when one is going to the, market to raise capital and secondly, being prepared to meet the requirements of a well-disciplined and functioning market, including things like good accountability, good corporate governance, etc.”
“If you’re going to the market to raise financing, whether its bond financing or equity, there is a cost… associated with being compliant with regulations, periodic press releases, managing your finances in a particular way, good financial accountability, good corporate governance etc,” Singh added.
The private sector has been vocal about the need for access to finance to be addressed, at one point calling out continued bureaucracy at commercial banks hindering access to financing. The PPP/C has also consistently urged the banking industry to be more proactive.
As a matter of fact, one of the strategies being pursued by the government to address access to finance, which has been a long-standing challenge in Guyana for entrepreneurs, includes efforts to attract a large, international bank to Guyana’s shores. (G3)