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Govt.’s intervention in the micro sector is not good for long term poverty alleviation
Dear Editor,
I have read with much interest the passing of the legislation to provide tax break for lending institutions that provide loans to the small business sector.
While it is Government’s mandate to alleviate poverty in the society and to create wealth for families, any strategy that is employed must be done so with much thought and high level of responsibility.
The legislation seemed to have specifically targeted the Women of Worth (WOW) programme that was conceptualized by the Ministry of Human Services and Social Security and I do compliment the minister responsible who is a very action oriented minister. I cannot help feeling this way, as it was passed simultaneously with the announcement of the WOW programme.
The Guyanese society is a cash-based one. For this reason, borrowers are not careful of establishing and upholding an unblemished credit rating as they can easily not repay loans and continue to access credit. There is an absence of an active credit structure in the form of a credit bureau. Borrowers are not careful to take it seriously to ensure that their debts are repaid if you have nothing to hold them with.
It is with this in mind that formal lending institutions in Guyana focus mainly on collateral as the main criteria of granting credit as no other established lending criteria such as character, capital, capacity and conditions of the borrower suffices. The nature and culture of the society offers easy manipulation of these other “C”’s.
To the informal sector, people repay out of fear as the “sword” is used because the “collateral” that people use is their lives.
The other aspect that makes up for a lack of collateral is to charge high interest rates on these loans as they provide for the high risk of granting credit. The evidence has shown that these investments are able to easily cover these high interests. This is a concept that, in my experience, government does not embrace.
Given the foregoing therefore, I would really like to be aware of the strategy that GBTI and the government will use to ensure that this loan portfolio will perform and remain healthy and that it is not another handout or an early election campaign.
Any strategy in this regard that totally ignores proper due diligence in the granting of these loans will be a short sited one. The failure of many government implemented programmes especially in third world countries is because government rushes to implement a strategy for a vain objective or just to satisfy an immediate self serving purpose. They do not put in place a proper enabling environment to ensure the success of the strategy. You are not helping people this way and it will come back to haunt the entire programme. I really hope the minister sees this. This is why we remain poor as a country.
Errol Chapman
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