Helping SMEs Succeed

February 7th, 2023

INTERVIEW

Ian De Souza
Principal Adviser, Advice Financial Company Ltd.

Veteran career banker, financial consultant and former Chamber CEO Ian De Souza has a rich perspective to share on the challenges and achievements the financial sector faced in 2021, the path forward in 2023, and the support needed by SMEs which would redound to the continued growth of the overall financial system and the larger economy.

Challenges

• The major challenges in 2021 and the first half of 2022, he said, all related to the recovery of businesses, and small and medium-sized enterprises (SMEs) in particular, from the impact of the pandemic and, more recently, the Russia-Ukraine War. These challenges, he noted, included:
• Supply chain issues, including the cost of shipping, which affected the supply of goods and services
• The increase in energy and food prices, which have also affected consumer and raw material prices
• The challenges of small and medium-sized businesses in servicing debts with loan moratoria extended by banks due to economic activity not having returned to normal.

Developments and milestones

Despite these challenges, he saw a number of positive developments taking place.

• These included:
• Increased use of digital solutions in conducting business
• Use of internet banking
• The establishment of a separate Ministry of Digital Transformation which, he said, signals Government’s intent on transforming how services are delivered to the public.

He flagged two business developments as significant milestones that would positively impact the business and hence the financial sector. They were:

• The opening of the Phoenix Park Industrial Estate, which is a significant means of support for business and trade, for example, the PriceSmart regional distribution hub which is being set up on the new estate.
• The Trinidad & Tobago Trade and Business Information Portal (TTBizLink) set up by the Ministry of Trade & Industry and launched in May 2022. Explaining the significance, De Souza said the facility gives all of the information required by an exporter to this country or someone looking to do business locally, as well as all of the information needed by a national exporter or importer seeking to find markets for manufactured products or source goods and raw materials.

Attracting investment

So, what could be done to attract investors? He noted that there is some investment taking place as with Unipet and charging infrastructure for electric vehicles. “People will want to have public chargers and especially destination chargers (like those currently available in Preysal, 100% renewable, and Brentwood gas stations) but right now the charging network is very limited.”

Moving forward

How does the industry move forward to better meet the needs of the business sector in 2023 and beyond? The veteran banker emphasised: “The fact that the banks are very conservative in their lending and investment policies is a positive. There will always be pressure on the banks to be less conservative in their lending policies, but one has to be mindful of the fact that there are two sides to a bank’s balance sheet, and the interest and safety of depositors always have to be borne in mind. Conservatism helps protect depositors and national savings.”

Concerning the needs of SMEs, he said: “There is pressure from small and medium-sized businesses for more financing support. The challenges they face in accessing loan capital is a limited amount of capital of their own for equity injection, and they also generally have limited amounts of security to offer. It is to be noted that most major financial institutions have special programmes to support SMEs, so that need is not lost on the industry. However, the challenge for banks and other financial institutions is that the failure rate for SMEs is high and to ensure that loan losses are minimised, there has to be insistence on equity injections and/or security.”

But he pointed out that apart from equity and security requirements to access funding, SMEs also need support in the following areas:-

• Affordable advisory support and representation in the interface with financial institutions when difficulties are encountered in servicing debts and reorganisation/restructuring is necessary
• Access to shared professional services when financial circumstances do not support the employment of individual professionals
• Documenting bankable proposals for expansion when new projects are being considered
• Accessing grant and funding support from multilateral agencies that have facilities specifically geared to support the SME sector
• Accessing the Junior Stock Exchange which has a window that is specifically geared to support those who have the capacity to scale up and can attract equity capital as an alternative to traditional bank financing.

Projected outlook

Looking forward to 2023, De Souza said: “The banking and financial services sector will continue to be challenged by the impact of rising prices and the cost of living on their personal loans customers,” which reduces disposable income(s) and spending ability, and affects business revenue and the ability to cover previously contracted costs and debts. However, he assured: “The sector is strong, thanks to the conservatism in lending and investment policies, so the major institutions have enough ‘wool on their backs’ to weather the storm.”

(Ian De Souza has spent 40 years in the banking sector, holding senior executive positions. He is now the Principal Adviser in a company he established – Advice Financial Company Ltd.)

By Kay Baldeosingh-Arjune