Prime Minister Dr. Ralph Gonsalves and Finance Minister Camilo Gonsalves, in a supposedly impromptu father and son tag team, slammed the New Democratic Party’s campaign promise to engender sustainable progress for local entrepreneurs through that Party’s intended investment in a financial institution that would provide business persons with investment capital on a non-commercial basis, should they attain political office.
The NDP’s elections 2020 proposal to create another development bank came under fire at the recent ceremony held to recognize the latest successful Promoting Youth Micro-Enterprises (PRYME) and Promoting Your Micro-Enterprises Plus (PRYME Plus) grant programme applicants as well as to premiere the new www.pryme.vc website.
Minister Gonsalves told the audience that he too was hearing recent “discussions about development bank and the like” and opted to await the appropriate “opportunities to discuss those things” before highlighting that the Grenada Development Bank – “which is a fine development bank … didn’t give out 75 loans to small businesses” in 2019.
“A development bank cannot give you $2,500 to start a catering business because by the time you get the $2,500 you paying back the $2,500. And they’re going to tell you that you’re not credit worthy, they going to tell you that you don’t have a history or you don’t have collateral and they going to tell you that that money is small money. ‘We would rather make a loan with developmental impact to a largish entity.’ Not for the kind of people we want to reach with PRYME.”
He described an additional benefit to the PRYME programme as being the perfect environment in which budding entrepreneurs can fail without incurring the financial burden that defaulting on loans may become, if the business idea does not perform as expected. “All you have after that is lessons learnt for your next business.
That’s what we want PRYME to be and that’s what PRYME is already in St. Vincent and the Grenadines,” Minster Gonsalves said.
Dr. Gonsalves criticized the NDP’s development bank plan while appearing on a previous episode of Asbert News Network and ITFX Digital Solutions’ Sunday afternoon interview series .
On that show he suggested that the development bank model is an outmoded concept that would require significant sums to capitalize its operation. Therefore his government opted to use other instruments such as “the partial credit guarantee,” and the current PRYME grants to achieve similar goals.
On Tuesday Prime Minister Gonsalves took to the podium to describe, in some detail, the fallacies that befell the most rest incarnation of a development bank here.
He characterized that latest attempt as possibly the first stillborn banking institution to have been commissioned “the world-over.”
“I came to office and met the development bank started back – they started a development bank you know – it was established in the year 2000, 1999/2000, the only problem with it … the liabilities with which it was started was far more than its assets…” Dr. Gonsalves said.
He explained that the Sir James Mitchell-led administration grouped a set of “bad loans,” which were generated due to improper oversight of the then Development Cooperation lending criteria, together with the “small portfolio of good loans” and capitalized the ensuing development bank with $5M.
“The good loans and the $5M in equity were far less in value than the bad loans, so the bank was stillborn because you can’t start a bank and when you look at it, you don’t have no money to lend nobody,” PM Gonsalves said.
Two days before that PRYME grant recognition ceremony, the New Democratic Party President Dr. Godwin Friday expounded upon his Party’s development bank concept while appearing on the interview series ‘On D Spot’ produced by Asbert News Network and ITFX Digital Solutions.
Dr. Friday said the objective would be to provide access to credit that would otherwise be unavailable in the private banking system. The ripple effect, he argued, would be many successful businesses that then contribute to the economy. “When they’re all doing well the whole economy floats, it’s arithmetic in a sense,” he said.
Dr. Friday agreed that capitalizing the development bank would of course take money even as he noted, “you have to find the money to do it because that is what would generate more money in the future.”
As to the issues that plagued the Sir James Mitchell administration’s development banks, Dr. Friday opined, “management is always a challenge… if we can find the right people, you set the right tone, the right culture within the operation and it’s not a system where you can come and it’s ‘friend-friend’ and you get a handout and you think you don’t have to pay it back.
That’s not the way it is.
“You don’t just come and there are very strict conditions under which you are entitled to loans, but you would also have mentoring. You’ll also have supporting mechanisms in place so you may have persons who are retired business persons, persons who are senior public servants, persons who are accountants, lawyers – whomever – volunteer their services to assist these business people to get them to think not just as somebody who makes potato chips or a lovely rum punch or whatever.
“It’s not just that and saying ‘why isn’t anybody buying it, it’s so good.’ The point is how do you transform that from an idea, from a product into a commodity that people want to buy? That is where the management expertise and support will come in to help those people to succeed because when they succeed what do they do? They pay back the loan. That’s the whole idea….”
As far as the implementation timeline is concerned, Dr. Friday opted not to commit his Party to any arbitrary or “slogonaring” kind of start-up date; instead, he said, “what we are going to do is set up an institution. We will get it right, we will make it effective to function on behalf of all the people in the country. We will get the right people in place, we’ll get the capital necessary to get it going then we will say we’ve accomplished what we set out to do.
“That may take 100 days or it might take 200 days the point is to get it right and those people who benefit from it, they would know when it happens.”
The NDP’s President also took a swipe at the PRYME programme as he described it as the government’s “attempt to say that they are reaching out to young people.”
To his mind the capital resources would have been best used if the Centre for Enterprise Development was used to invest in an incubator style model. Ultimately, he said, the NDP is in support of anything that gives Vincentian youth a chance to excel.
However, “what you don’t want is for it to become a handout to people based on their affiliation to a political party, the governing party. That unfortunately has been too much of a track record for this administration for us not to worry that this will happen and then you don’t evaluate projects on the basis of their merit, you’re doing it on the basis of political affiliation and that would doom the projects entirely and it will doom the programme entirely and I hope that that doesn’t happen.”