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SMEs benefit from forest conservation scheme

Article - June 3, 2015

Green Guyana intends to stay that way, and its government is calling upon the private sector to do its part to maintain the country’s status as home to some of the planet’s most pristine forests

Deforestation has been occurring at such a slow rate in Guyana, that it was only natural that Guyana came to form part of the United Nation’s Reducing Emissions from Deforestation and Forest Degradation (REDD+), a program in which financial value for the carbon stored in forests is created, and developing countries are incentivized to invest in low-carbon routes to sustainable development.

Because Guyana’s main economic activities, namely mining and timber, are the main drivers of forest loss, the international community has stepped in to ensure that alternative sectors are given the boost they need to become more significant contributors to the country’s economy. In 2009, the South American country signed an agreement with Norway, in which the latter agreed to contribute up to US$250 million by 2015 if Guyana continued to keep deforestation at a minimum.

Through the Guyana REDD+ Investment Fund (GRIF) – described by the fund as a “multi-contributor trust fund for the financing of activities identified under the government of Guyana’s Low Carbon Development Strategy (LCDS)” – the country has received to date US$150 million from Norway. The most recent payment of US$35 million was made in October 2014, thanks to the fact that “in 2012, Guyana kept deforestation and forest degradation at very low, though increased, levels,” according to the Norwegian government.

The money is then put to a wide range of uses, including an Amerindian Development Fund, and International Center for Biodiversity Research, and the Micro and Small Enterprise Development (MSED) project, among many others.

US$10 million from the GRIF was allocated to the MSED project, which the Ministry of Tourism, Industry and Commerce launched in October 2013 with the mandate to facilitate access to finance – with interest no higher than 6% – to small companies and to vulnerable groups. Previously, due to the inherent risk of start-ups and small businesses with little-to-no collateral, credit was hard to come by at all, and those loan requests that were accepted were offered with a high-risk premium pegged on to the standard rate of interest. This was hindering growth in many sectors and stifling entrepreneurism, despite the fact that Guyana depends a good deal on its small and medium enterprises (SMEs), which account for more than 90% of all businesses in the country.

Thanks to affordable “green loans” made possible through MSED, micro and small companies, as well as qualified potential entrepreneurs, now have a better chance to succeed in their low-carbon business sectors and thus contribute towards Guyana’s green economy. The sectors that qualify for financing include sustainable forestry, eco-tourism, business process outsourcing, aquaculture, fruit and vegetable farming and agro-processing.

MSED is monitored by the Guyanese Small Business Bureau in partnership with the Inter-American Development bank. The first financial institution to sign on to the program was the Guyana Bank for Trade and Industry (GBTI), which also partners with the government and Conservation International in the Rupununi Innovation Fund (RIF).

Launched in July 2014, RIF also falls directly in line with LCDS, as it provides financing and technical support for local and community-based agriculture and tourism businesses in southern Guyana. With the GY$60 million (US$290,000) that GBTI invested as seed capital, and the US$1.6 million co-financed by the Inter-American Development Bank’s Multilateral Investment Fund’s Rupununi Livelihoods Project, RIF seeks “to foster economic development of the region in an environmentally friendly way”, says John Tracey, CEO of GBTI.

Efforts by GBTI – which saw net profits double between 2009 and 2013 – to help small, local businesses thrive don’t stop there; and in order to widen its own services offering and further develop this segment, in 2014 the bank requested help from the International Financial Corporation (IFC) to improve client-focused approaches for SMEs.

“The Rapununi Innovation Fund is really a small part of our portfolio,” explains Mr. Tracey. “In general, we have been focusing on SMEs and financing them as an opportunity to grow our bank. To this end we have engaged the IFC, as there is an opportunity in the SME sector. However, the right approach must be taken, where a risk management system is essential.”

“The IFC was willing to do a diagnostic and reported that we were not performing very well from a risk point of view,” he continues. “They advised us to engage consultants to improve our system. For the entire year [2014], there have been a number of consultants analyzing the systems and recommending improvements so that we could have an enterprise risk management system.”

Between 2006 and 2013, loans and advances increased significantly, from US$30.6 billion to US$82.6 billion, according to Tourism, Industry and Commerce Minister Mohamed Irfaan Ali. And while most lending still goes to large, well-established enterprises, the government actively encourages banks, through initiatives such as MSED and RIF, to broaden their credit portfolios.

“The Guyana government has been hailed for its work, through legislation and other initiatives, to strengthen the financial sector and provide the leeway for it to take risks without violating any prudential norms,” said Finance Minister Dr. Ashni Singh said at the MSED launch in 2013. “I do urge the banks to actively seek out good lending opportunities including working with entrepreneurs where some nurturing and mentorship is required.”