Ann-Dawn Young Sang | Collaborations, financial support critical for MSME survival

We are living in some unprecedented times, with COVID-19 disrupting the normal course of our lives. The worst hit in all this are the small businesses, which are facing an uphill task to keep themselves operational.

As part of the ongoing American Chamber of Commerce Jamaica (AMCHAM Jamaica) webinar series, we focused on ‘Resilience, Recalibration, Recovery, and Renewal – How Small & Medium Enterprises are Handling the COVID-19 Pandemic’, where business leaders shared their views and made recommendations.

The presenters, Brian Martalus, director, development finance corporation (DFC), Washington, DC; Adrian Stokes, SVP and head – insurance & wealth management, Scotia Group; Donovan Wignal, president – Micro, Small & Medium Enterprise Alliance; and Andrew Pairman, CEO – Anbell/Intelligent Multimedia, unanimously said that strong, consistent, and ongoing support mechanisms, as well as a congenial environment are critical for the survival and growth of micro, small and medium enterprises (MSMEs) in Jamaica.

The primary focus of the webinar was to address the problems facing the MSME sector, which accounts for over 48 per cent of the Jamaican workforce, in the COVID-19 pandemic, and critically, to deliberate upon the possible solutions to chart a path of recovery and resilience as they move forward in the post-COVID-19 world.

The key focus was on the lack of financing for MSMEs and how to bridge that gap, how to overcome the hurdles thrust upon them by the current pandemic, and recommendations to build a resilient business.

It is estimated that MSMEs in Jamaica constitute 97.6 per cent of all classified and registered tax-paying enterprises, contributing 50 to 60 per cent of GDP overall. There is also the informal sector, which accounts for 43 per cent of GDP. Additionally, there are 465,200 sole traders, accounting for 35 per cent of the labour force in Jamaica. Collectively, this sector has come under a lot of pressure.

HARDEST-HIT SECTOR

The current COVID-19 pandemic has left economies across the world in a slump, and with the implementation of health protocols – partial to total lockdowns, restricted movement, social distancing – the MSME sector has been hit hard.

Donovan Wignal says that MSMEs are vulnerable due to systemic shocks due to general economic slowdown, it may be two to three years before pre-COVID-19 levels of growth are achieved for the sector. Tens of thousands jobs have been lost, and there have been other knock-off effects, and significant wage cuts of between 20 and 40 per cent for many of those who are still employed.

Andrew Pairman said survival of the MSME sector would depend on creative solutions. Involving the staff and getting their feedback is also critical. He called for a definitive need to be more efficient and resilient, map the customer habits that have changed, with more and more people conducting business and making purchases online.

Adrian Stokes said that the issues facing the MSME sector are centered on their inability to access finances to grow businesses. According to him: “There is a high level of informality, information asymmetry problems, lack of adequate collateral.”

Stokes added that these issues are compounded by the fact that many businesses have inadequate or incomplete financial statements in order to be eligible for tapping into financing options. There is also nascent private equity and a venture capital ecosystem and inadequate credit products that are well suited to the MSME sector, for example, reverse factoring.

ACCESS TO FINANCING

In light of the current COVID-19 crisis, and the resultant fallout, there are areas that need to be addressed and issues that need to be ironed out. The presenters, though, exuded optimism that despite the challenges, there is need to strategise, plan, and create a long-term plan to rebound and grow businesses.

According to Brian Martalus, it is important to tap the availability of funds for projects and this is the right time to make investments in the future after the current crises pass over.

Critical to all the planning, building a viable and resilient business is to put due diligence in place.

The MSME sector needs to work assiduously to formalise their businesses to access credit, and it is also critical for the businesses to collaborate with other organisations, including AMCHAM, to get more leverage, and have their voices heard in various fora.

It is critical to forge alliances and partnerships and to also gain more knowledge on what financing tools are available and how to access them.

Pairman said that there is need for greater collaboration with organisations like AMCHAM and businesses, set up training programmes to help MSMEs, access financing, build capacity, and forge strategic alliances to achieve greater growth.

In focusing on how to solve the collateral problem, Dr Stokes highlighted the Credit Enhancement Facility (CEF). The objective of the CEF, he said, is to encourage Accredited Financial Institutions (AFI) to increase lending to MSMEs for viable projects and works with the needs and wants of the businesses. The terms, he said, are not rigid.

The CEF utilises information based on criteria such as the borrower’s character and the future cash flows of the business. Under the CEF, for both the Development Bank of Jamaica and AFI, businesses can access general MSME loans.

DFC/USAID has inked several partnerships with Jamaican financial institutions and has several loan portfolios into which the MSME sector can tap. Among them are USAID-sponsored US$8.5 million loan portfolio guarantees with Access Financial Services and JN Small Business Loans to promote access to finance for Jamaican micro-enterprises, particularly in vulnerable communities. This runs from 2015 to 2023, and approximately US$2 million in lending is left under this facility for Jamaican micro-enterprises.

It is imperative that the requisite support systems are in place for the MSME sector, and on the part of the business owners, it is important to implement best practices, look for opportunities to infuse capital for their businesses, enhance capacity building, and critically, come together as a group to make their voices heard.

Ann-Dawn Young Sang is the president of AMCHAM Jamaica and founder and CEO at AYS Global Consults Ltd. Send feedback to secretariat@amchamjamaica.org.