GBTI’s risk management overhaul to help small, medium businesses

Last Updated on Saturday, 26 December 2015, 21:00 by GxMedia

Left to Right: Canadian High Commissioner to Guyana, Nicole Giles; IFC Operations Officer, Sergio Selaya; Chief Executive Officer of GBTI, John Tracey and Financial Access’ ERM Project Director, Jan Cherim.

More jobs could soon be created through Small and Medium Enterprises (SMEs) once they pass the Guyana Bank for Trade and Industry’s (GBTI) new risk management criteria that might include non-financial information.

The new yard-sticks will be developed over the next two years through the establishment of an Enterprise Risk Management framework.

The bulk of the undisclosed funding for the project was provided by Canada and the remainder by GBTI and the World Bank’s International Finance Corporation (IFC).

“We hope that this will open up a wider window for them (SMEs) to access finance,” said Tracey.
GBTI’s Chief Executive Officer. The project is being implemented by The Netherlands-headquartered Financial Access.

The IFC recommended that GBTI heighten its risk management to international best practices after managing a US$3 million trade financing facility.

Tracey acknowledged that the bank has not been up to scratch in measuring risks structurally and scientifically. “We have to be more structured with data collection and mine the data to measure and mitigate risk. The way we price loans is rather subjective and this project will bring very scientific ways to price loans,” he said.

Canada’s High Commissioner to Guyana, Nicole Giles told the launch of the risk management project that leading banks that support SME lending have recognized the paucity of financial information in small businesses and have come to recognize that financial ratios are only one aspect of determining financial stress. She said qualitative variables such as age, type of business and business sector are increasingly being used to help improve the prediction accuracy of these models.  

Latest statistics released by Giles show that about 65 percent of Guyana’s SMEs are un-served or under-served by the country’s financial system, which limits their ability to grow and create jobs. She said that was a significant economic loss to Guyana especially when one considers that SMEs account for over 90 percent of all businesses in Guyana

Giles said commercial banks were constrained in their ability to lend to SMEs for several reasons including the macroeconomic environment, the legal and regulatory framework, and financial sector infrastructure.  Banks are also constrained by their own internal limitations in terms of capacity and technology, as well as by factors specific to SMEs:  their size, number, the nature of their business, as well as the lack of transparent records, she said.

The Canadian High Commissioner said her government was optimistic that the outcome of that initiative would help GBTI to design a more comprehensive prediction model that is specifically tailored for the SME sector, one that is not only based on financial ratios derived from accounting data.

Experts say they will work with GBTI to address credit, liquidity, market, operational, interest rate and regulatory risks. “What we are aiming to work with GBTI is to take the risk assessment of their clients to the next level and so the bank will be better able to identify the risk profile of their clients, offer better conditions to their customers,” said Operations Officer at the IFC Office for Advisory Services – Access to Finance, Sergio Selaya.

Project Director of Financial Access’ Enterprise Risk Management, Jan Cherim said his company intends to work with GBTI in developing a risk management strategy for processing loan applications and marketing and selling services. “we still think it should be possible to offer a range of products which are a little bit more inclusive and perhaps penetrating a bit farther into the economy,” he said.

The IFC says that in Guyana many financial institutions maintain conservative lending policies and rely individual and personal knowledge of potential and existing clients. Lending decisions, the IFC adds, are often basxed on collateral value, rather than on risk assessment. As a result, financial institutions lend primarily to high net worth individuals and businesses with signficant collateral, which contributes to a signficant lending gap for small and medium enterprises.

The IFC states that risk management practices that are appropriate only for corporate clients have curbed financial institutions’ appetite to expand into new market segments such as lending for small and medium enterprises whioch are often seen as high-risk borrowers.