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      FINANCE LEASING INDUSTRY CREATION IN THE CARIBBEAN

      17 August 2009

      In T&T Business Guardian's January 8th 2009 issue, CEO Johnathan Adams of Trinidad's Small Enterprising Business Association estimated a decrease in national Small Micro Enterprise (SME) activities by 60% for 2009 and beyond. It is noteworthy that Trinidad & Tobago is considered a high income country having comparatively more resources than other smaller nation states to support the SME sector. This gives clear indication as to the more dire expectations for the smaller OECS countries for SME growth. In contrast, the V Summit of Americas policy called for private sector and financial institution support of SME and micro-entrepreneurial initiatives to foster human prosperity within the region.

      SME initiatives have not seen the sort of results desired by investors and entrepreneurs alike, as by and large most SME activity in the Latin American and Caribbean region has operated within either a traditional lending or a subsidized framework. Both ends of the lending continuum have not lent the ingenuity and creativity needed to foster a sustainable entrepreneurial community. As well, the conglomerate and expatriate structures within the regions private sector also have deflated market penetration in the traditional commercial sense for burgeoning business communities.

      Two significant challenges are posed to SMEs, that of collateral and lack of technical assistance. Traditional commercial lending provides few financing options for an SME's lack of physical collateral, and even when the loan is had, technical assistance is lacking. Many government subsidized initiatives provide numerous grants to a quota of SMEs without access to funds or collateral. However, an added approach to financing is pivotal to fostering true accountability and longevity within small and micro enterprise initiatives. The traditional business climate as it stands is in need of additions and modifications to the SME paradigm. It is here where the creation of a finance leasing sector within Latin America and the Caribbean comes into focus.

      The Small Enterprising Business Association (SEBA) CEO gives recommendations for supporting SME growth in these challenging times.

      1. Have agencies such as the National Entrepreneurship Development Company (NEDCO) and commercial banks provide more loans for small businesses.2. Have agencies such as the SEBA work with Nedco and other agencies to provide more training for entrepreneurs to equip them with the skills needed to run a business.

      What institutions may provide such assistance? Via e-mail information request with Minerva A. Kotei in January 2009, IFC Leasing Specialist located in Washington D.C., we see leasing is indeed the wave of the future for SME Growth. According to Mrs. Kotei:

      "IFC's experience in leasing over the past 30 years demonstrates that leasing is relevant to address the key issues that hinder SMEs access to finance and facilitates the development of a strong financial sector by broadening the range of financial services. There is however no strict institutional mechanism for developing leasing. Leasing can work as part of commercial banks operations, bank subsidiary or as an independent entity depending on the institutions operational framework and market conditions. Generally, independent units can be more effective in building a leasing market while banks in SME outreach."

      The Caribbean, especially utilizing Trinidad & Tobago as a financial and developmental hub, already possesses a far more political and economic environment, rich with entrepreneurial growth to embrace new industry creation via lease financing. For example the Business Development Corporation (BDC) of Trinidad & Tobago currently has a sound leasing and technical assistance program which, to me, is underutilized.

      But what exactly constitutes a leasing industry? Is it one where the banks beef up on their equipment leasing programs for SME's? Is it one where the government implements more institutions such as NEDCO or BDC in Trinidad to offer equipment leasing options to more SME's? Or should a private sector leasing industry be developed, where existing construction, hardware and computer/IT firms learn how to offer leasing packages to SMEs? It may be a combination of the three. A leasing program offers SME's access to equipment and other services. While an operating leasing leave a SME with less tangible long term assets, it allows a company to have use of newer equipment without the hassle of maintenance and obsolescence, with the option of purchase at the end of a certain period. The point is to get around the lack of collateral, while allowing for business operation and building cash flow.

      The International Finance Corporation strongly supports creating visible leasing programs to bolster an SME sector within developing nations. And I agree. It may be that existing banking and government lease programs be mass-marketed and made much more visible, or, that existing private sector wholesale/retail centers (e.g in Trinidad, Bhagwansinghs, Courts) begin a strong SME equipment/business leasing program.

      One thing's for sure, and I KNOW this for FACT after speaking to many small business entrepreneurs - SME's have the drive to succeed in business, but do not know what help is out there and do not know how to begin to look for this help - business development consultants, a leasing program, other technical assistance. The current pattern of providing the services and expecting the SME owner to come is not truly working. We need more exposure and marketing to these SME's of the services, leasing and otherwise, that exists. The SME keeps balance in an economy, especially when big business is in need of restructure. In that case, we can't afford a 60% SME failure rate.

      If you have any thoughts about leasing and microfinance programs, please share.

      ———————————————————-Additional References:

      IFC's Access to Finance Reporthttp://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/A2F-HighlightsReport2008/$FILE/A2F-HighlightsReport2008.pdf

      Tiger Leasing Company, New Yorkhttp://www.tigerleasing.com/faq.shtml

      Leasing Options: Capital or Operating Leasehttp://www.cr-ny.com/Operating_vs_Capital_Lease.html

      Image taken from:http://www.4leasequotes.com/equipment_leasing_options.html

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