IDB: Credit finance access, cost worsened drastically since 2014

Access to and the cost of finance for businesses in The Bahamas “worsened drastically since 2014”, with the COVID-19 pandemic exasperating it, a new Inter-American Development Bank report has revealed.

The Q2 Caribbean Economic Quarterly focused on the changes in firms’ access to finance between 2014 and the end of 2020 – two benchmark years during which surveys were conducted.

It found in general deteriorating financial access in the Caribbean despite successful policy measures to avert financial and corporate sector defaults throughout the region.

For The Bahamas in 

particular, obstacles surrounding the cost and accessibility of financing doubled over the six-year period under review.

“In 2014, 28 percent and 11 percent of Bahamian firms said that access to and the cost of finance were major or very severe obstacles, respectively, according to Compete Caribbean’s Productivity, Technology, and Innovation in the Caribbean (PROTEqIN) Enterprise Survey. By December 2020, these figures almost doubled to 52 percent and 19 percent respectively, according to Compete Caribbean’s Innovation Firm Performance and Gender (IFPG) Survey,” the data found.

“The decrease in the perceived access to and cost of finance is not surprising, considering the unique macroeconomic conditions and the fact that domestic banks were broadly tightening their balance sheets in preparation for expected defaults and an increase in non-performing loans.”

In 2020, the commercial loan rejection rate – as reported by The Central Bank of Bahamas (CBOB), was 7.2 percent in the second half of the year. That increased more than doubled during the same period in 2021, when the rejection rate was 17.7 percent.

While the final survey was conducted at the end of 2020, and during a pandemic, it was also done at a time when the government provided in excess of $50 million to support small and medium-sized enterprises (SMEs).

It is worth noting, the IDB said, that the 2020 survey is based on responses solicited in December 2020, which was during one of the most uncertain and severe stages of the COVID-19 crisis.

“As a result, it is likely that some of these constraints would have eased since then, as economies and borders have reopened. That said, other economic and financial concerns have emerged since 2020, including the global acceleration of inflation, driven in part by commodity price shocks and supply chain issues,” the report said.

“Similarly, after a period of extraordinary policy intervention and accommodation, governments and central banks throughout the world have begun unwinding emergency stimulus measures, while simultaneously tightening rates and financial conditions to fight rising prices. In this context, firms in the Caribbean and elsewhere now face new and increasingly severe financial headwinds.”

Last month, the CBOB released a consultation paper on the draft Movable Property Security Interest Bill and the reforms needed for taking security in movable property. This reform is aimed at allowing SMEs to use movable assets as a form of collateral when seeking financing from lending institutions, which have for years hampered access to credit for small businesses because they did not hold immovable assets like property.

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Paige McCartney

Paige joined The Nassau Guardian in 2010 as a television news reporter and anchor. She has covered countless political and social events that have impacted the lives of Bahamians and changed the trajectory of The Bahamas. Paige started working as a business reporter in August 2016. Education: Palm Beach Atlantic University in 2006 with a BA in Radio and Television News

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