Local banks cautious but responding to need for formal financing

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Local businesses have largely been able to respond to the demands of Guyana’s new oil and gas industry using informal and internal sources of financing. Recognising the need for businesses to instead access formal financing and the role local banks can play in this regard, the Center for Local Business Development (CLBD) has been engaging financial institutions and businesses to bridge this gap.

During a virtual press briefing on Thursday, Anthony Sinclair, an expert in finance and advisor to the center, said that while banks were cautious, they were making changes to respond to the new dynamics of financing businesses operating in the oil and gas sector.

“They are not ignoring and that’s a good sign,” he said.

Over the last week, Sinclair along with representatives from CLBD, engaged some 18 members of the local business community as an assessment on the crucial need for informal financing continued.

Reporters and officials from CLBD during the virtual hearing

Reporting on the discussed challenges, he said although not artificial, the cost of finance is still high. This, Sinclair explained, is based on assessed risks, economic cost and policies but says that he is sure over time that will come down. Additionally, he said there is still a constraint in meeting financial requirements. This would now require banks that have traditionally used properties as collateral to shift this to accommodate a broader range of assets.

With the banking system still configured for Guyana’s traditional agricultural and manufacturing-driven economy, Sinclair explained that businesses are becoming frustrated with the length of time it takes for financing to be approved in this new oil and gas industry.

According to the Director of the CLBD, Natasha Gaskin-Peters, businesses were also told of their responsibility in the process, which would include maintaining good accounting records, paying bills on time and having a functional cash system.

Sinclair pointed out that with some $380 million spent on oil and gas investments since 2016, access to formal financing is now more crucial than ever for overall economic growth. He too cautioned that if this doesn’t happen, there is the propensity for Guyana to see lopsided economic growth.

The Center’s Director later explained that the informal sources of financing being referred to are legitimate sources but not from the formal financial system.

She said “banks are participating” and assured that there is an “existing banking relations with new suppliers” and recalled the two new products proposed by the center to local banks – purchase order finance and receivable back finance.

While little progress was achieved on these two proposals in 2020 because of the COVID-19 pandemic, Gaskin-Peters is hopeful of great achievements this year.

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