A Roadmap for Action

W. Bernard DrumJanuary 17, 2013

Purpose of Today’s MeetingBriefly summarize the findings and

recommendations from the recent study on access to finance for SMEs in Suriname

Obtain feedback on the study report from a small group of important stakeholders. This will help in preparing a final version of the report for wider dissemination

Identify areas of consensus and establish priorities for action

Identify concrete next steps

The StudyInitiated in September 2012 by CUS in the

Office of the Vice President, with the support of IDB’s Compete Caribbean Project

Work done by consultant W. Bernard Drum with support from CUS staff

Consisted of (i) desk research and (ii) ten days of field research in Suriname in October 2012

Analysis and recommendations draw on Suriname specific findings and on international best practices

Suriname Economic BackgroundSolid economic growth of 4.4 percent since 2000Fiscal surplus of 1 percent of GDP in 2011Debt at low level of 17.6 percent of GDPBut economy highly dependent on commodity

exportsEconomic diversification is a top priorityLarge companies dominate in mining, banking,

agro-processing and tradePrivate sector includes up to 20,000 SMEs, mainly

in retail, trade, transportation and servicesMore than 25 percent of workforce employed by

Govt.

Suriname Business Environment Recent Reports

GEF Global Competitiveness Report 2012-2013

World Bank/IFC Doing Business Report 2013

World Bank Enterprise Survey 2010Compete Caribbean Private Sector

Assessment Report 2012

Main Findings of these Recent reportsGCI ranks Suriname 114 out of 144 countries

Main constraints government bureaucracy corruption access to finance

Doing Business ranks Suriname 164 out of 185 countries Main areas of poor performance are

protecting investors, enforcing contracts, starting a business, registering property getting credit resolving insolvency

Main Findings of these Recent Reports (continued)WB Enterprise Survey cites the top three

constraints experienced by Suriname enterprises asInadequately educated workforceCustoms and trade regulationsAccess to finance

Compete Caribbean PSAR cites the need to improveAccess to financeProperty rightsTransaction costs for trade Labor markets

Priorities identified to improve the business environment

Identify and target priority sectors for developmentpromote clusters, linkages, innovation and new

technologiesStrengthen the institutional framework for

competitiveness including improved interagency coordination, public private dialogue and investment promotion

Implement business regulatory reformTarget MSMEs for development, strengthen MSME

skills and business associationsImprove the corporate tax structureImprove corporate governanceImprove access to finance, especially for SMEs

(identified as a key constraint in all the reports)

Banking sector performanceGood performance on capital adequacy (12 per

cent), return on assets (1.9 percent) and return on equity (27 percent)

Ongoing proactive measures by the Central Bank to improve supervision

Deposits are around 51 percent of GDP – near the regional average

Interest rate spreads around 5 percent for local currency – near or below the regional average

But credit to the private sector is only 23 percent of GDP, and Suriname ranks as one of the lowest in the region on this criterion

Banking sector structure and infrastructureSector is highly concentrated with 80 percent

of assets in top three banksState ownership predominatesNo formal credit information sharing

mechanismNo movable assets registryClearing and settlement and POS/ATM

infrastructure relatively well developedNBFS not significant as a source of finance for

business with the exception of informal lending

State Sponsored Credit LinesA number of internationally financed credit

lines have been extended through the commercial banks over the last 30 years, in many cases with NOB as the apex institution

Anecdotal evidence is that the performance of these credit lines, particularly the earlier ones, was mixed

Recent announcements of trade guarantees for SMEs through DSB

Plans are on the table for setting up a partial credit guarantee scheme

Main Access to Finance Impediments Identified in the StudyCentral Bank reserve requirements – 25 percent

for domestic currency and 40 percent for forexLoans secured mainly by real estate – no movable

assets registry or developed secured transactions regime

Lack of a formal credit information sharing or reporting mechanism

Historical focus of the commercial bank lending on larger borrowers

Inadequate financial reporting regulations and practices in Suriname

continued

Main access to finance impediments identified in the study (continued)Lack of skills in SMEs in the preparation of

business plans and loan proposalsWeaknesses in the investor protection regime

that impede the development of the capital markets

Little use of leasing or factoring and the absence of an enabling environment to encourage the use of these instruments

Little or no venture capital available

RecommendationsCreate a private credit bureau

Independent ownershipComprehensive sharing of all credit

information Wide coverage of credit sourcesUse internationally available expertiseConsult fully with the public to ensure success

Continued:

Recommendations (continued)Strengthen the secured transactions regime

and create a movable assets registryReview the legal framework governing

property rights and collateral and make changes where necessary

Design and implement a collateral registry to cover all movable pledged collateral in Suriname Limit information to security interests Online and accessible at all times Secure Subject to data entry by registrants

Recommendations (continued)Strengthen accounting and auditing rules and

standards

Draft an Accountancy Act to include institutional and accounting reforms

Strengthen capacity of SUVA and improve training of accountants

Establish a Securities and Exchange Commission and continue to improve Central Bank supervision

Phase in new reporting requirements at a rate compatible with development of accounting capacity

Recommendations (continued) Support training of entrepreneurs in business

planning and loan proposalsEngage all stakeholders and complete a study of

supply and demandAvoid generic training and focus on specific needsDelivery it in a market friendly way through

private providersEnsure cost recovery through beneficiary

contributionsApply rigorous monitoring to ensure desired

targeting

Recommendations (continued)Support training of bankers in SME lending

Assess supply and demand for such training and determine its scope

Select an institution to deliver itLikely focus will be on SME lending skills such

as: Risk appraisal and management Loan products and pricing Collections Information systems Compensation and incentives for loan officers

Recommendations (continued)Develop additional sources of finance and financing

instrumentsTo promote the stock market complete a review and

update corporate governance laws, regulations and practices

Create a new code of good corporate governance Improve financial disclosure Enhance the roles and compositions of boards of directors Increase CEO and director accountability

Enact a new capital markets lawReview and improve legislation impacting the creation

of venture capital companiesReview the laws and tax rules governing leasing and

factoring

Recommendations (continued)Complete a detailed cost benefit analysis of current

proposals for a credit guarantee facility. If a decision is taken to go ahead:

Establish monitoring and evaluation criteria in advance and apply them rigorously

Building of capacity, particularly risk management skills, within lending institutions should be a major objective

Maximize involvement of private institutions in implementation

Central Bank should supervise the operationBeneficiaries should be SMEs who should be required to

provide collateral or other securityParticipating financial institutions should be required to

cover a share of the risks

Thank you