Suriname Improving Access to Finance for SMEs A

Suriname: Improving Access to Finance for SMEs A Roadmap for Action W. Bernard Drum January 17, 2013

Purpose of Today’s Meeting Briefly 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 Study Initiated 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 Background Solid economic growth of 4. 4 percent since 2000 Fiscal surplus of 1 percent of GDP in 2011 Debt at low level of 17. 6 percent of GDP But economy highly dependent on commodity exports Economic diversification is a top priority Large companies dominate in mining, banking, agroprocessing and trade Private sector includes up to 20, 000 SMEs, mainly in retail, trade, transportation and services More 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 2010 Compete Caribbean Private Sector Assessment Report 2012

Main Findings of these Recent reports GCI 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 as Inadequately educated workforce Customs and trade regulations Access to finance Compete Caribbean PSAR cites the need to improve Access to finance Property rights Transaction costs for trade Labor markets

Priorities identified to improve the business environment Identify and target priority sectors for development promote clusters, linkages, innovation and new technologies Strengthen the institutional framework for competitiveness including improved interagency coordination, public private dialogue and investment promotion Implement business regulatory reform Target MSMEs for development, strengthen MSME skills and business associations Improve the corporate tax structure Improve corporate governance Improve access to finance, especially for SMEs (identified as a key constraint in all the reports)

Banking sector performance Good 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 infrastructure Sector is highly concentrated with 80 percent of assets in top three banks State ownership predominates No formal credit information sharing mechanism No movable assets registry Clearing and settlement and POS/ATM infrastructure relatively well developed NBFS not significant as a source of finance for business with the exception of informal lending

State Sponsored Credit Lines A 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 Study Central Bank reserve requirements – 25 percent for domestic currency and 40 percent forex Loans 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 proposals Weaknesses 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

Recommendations Create a private credit bureau Independent ownership Comprehensive sharing of all credit information Wide coverage of credit sources Use internationally available expertise Consult fully with the public to ensure success Continued:

Recommendations (continued) Strengthen the secured transactions regime and create a movable assets registry Review 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 proposals Engage all stakeholders and complete a study of supply and demand Avoid generic training and focus on specific needs Delivery it in a market friendly way through private providers Ensure cost recovery through beneficiary contributions Apply 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 it Likely 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 instruments To 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 law Review and improve legislation impacting the creation of venture capital companies Review 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 operation Beneficiaries should be SMEs who should be required to provide collateral or other security Participating financial institutions should be required to cover a share of the risks

Thank you