Presented byJoanna Charles

Assistant General Manager Bank Of Saint Lucia (BOSL)

This presentation will focus mainly on the Bank of Saint Lucia’s(BOSL) experience and development within the SME market inSt.Lucia.

Market Overview Eligibility of SMEs to access finance Overview of BOSL SME lending portfolio BOSL’d response to meeting market demands for finance BOSL Future initiatives to improve Access to Finance Market Efforts to Improve Access to SME Finance

1. The total number of SMEs in Saint Lucia is estimated at around 7,300.

2. The total potential market volume is estimated at EC$ 700 million (approx USD 268 million), which corresponds to 70% of the sectors’ total estimated assets.

3. 77% of the total number of SMEs (or slightly more than 5,600) is assumed eligible for a small business lending facility, with an estimated 4,100 businesses qualifying for a small business facility (exposure up to EC$ 200 thousand) and another 1,500 businesses qualifying for a medium-sized lending facility (between EC$ 200 thousand and EC$ 1 million)

4. Average demand is estimated at EC$ 63,000 for small loan facilities and EC$ 460,000 for medium-sized loans.

Source: New Business Concept for Small Business Lending (LFS market research 2008)

5. There is a large degree of financial interrelation between household and business units of entrepreneurs as well as multiple sources of income to the household unit.

6. More than half of the surveyed enterprises did not receive a bank loan 3 years prior to 2008

15% report having had loans from BOSL, followed by 10% from ScotiaBank.

7. 87% of all enterprises are located in the Northern and Western Regions of the island, with the Castries and Gros-Islet districts accounting for 55% alone.

8. A large majority of the surveyed enterprises are operated as sole-proprietorships (65%). Less than 10% are limited liability companies. Only a low 18% SMEs in Saint Lucia are not registered.

Source: New Business Concept for Small Business Lending (LFS market research 2008)

9. Around 70% of the businesses in the sample employ less than 5 people. 25% of the unregistered businesses do not employ any workers.

10. 60% of the surveyed entrepreneurs are female. 20% of the female respondents feel that it is more difficult for them to access credit from banks.

11. The role of non-bank finance providers in St. Lucia is limited for the SME sector. Performance of dedicated microfinance operators is often poor and their operations limited to the microfinance market (i.e. maximum loan amounts below EC$ 20 thousand).

12. The Government of Saint Lucia has set up a new development bank in an effort to take up some of the shortfall

Source: New Business Concept for Small Business Lending (LFS market research 2008)

83%

12%

3%

2% Types of Enterprises

Micro

Small

Medium

Large

Sector Distribution

◦ Trade (retail and wholesale) and Services are the most represented enterprises representing 44% and 40% of all enterprises respectively.

44%

40%

3% 13%

Sector Distribution of EnterprisesTrade Services Agriculture Production

Despite the great potential of this market segment access tofinance, that is, the ability to quality for availablecredit, remains a challenge for many SMEs.

Based on an LFS research conducted in 2008 under the jointpartnership of IFC and BOSL, more than half of the surveyedenterprises did not receive a bank loan over 3 years prior to2008. This results from a generally low risk appetite for thisbusiness segment attributed mainly to the following:

Insufficient equity Insufficient collateral Poor Credit History Under-developed business idea/Little or no

understanding of the market Lack of business management skills High level of competition resulting in low

margins

Poor Financial Management practices leading to poorperformance and ability to service debts

Poor Quality Financial Statements or lack of records Inadequate marketing- Leading to loss of market

share or no growth Poor Saving habit- SMEs rely heavily on debt finance for

growth Lack of innovation and keeping up with customer

demand- Impacts on competitiveness Excessive drawings from the business High production costs/cost of inputs

While the number of SME Finance Institutions is widespread inSt. Lucia, many SMEs are unable to access SME finance due tothe above challenges. Many Financial Institutions, in particularcommercial banks, adopt more stringent credit riskregulations towards SMEs. These include:

Shorter-term credit

Higher interest rates

Smaller loan amounts

Increased collateral

Other stringent credit risk regulations

These prevailing credit risk regulations regardingSMEs either eliminate a significant portion of themarket or result in high cost of financing forqualifying SMEs. This results in:

An underserved SME market(evidenced by LFS study)

Undercapitalization (inadequate financing) Stifled growth Business failure

In spite of the many challenges dealing with the SMEsector there are significant benefits. Recognizingthis, many Financial Institutions have begun toposition themselves to better serve this sector whileat the same time guarding against the inherentrisks.

Government and the private sector have alsocontributed to the development of this sector in aneffort to enhance their attractiveness for financing.

Key Statistics:

As at today’s date BOSL is operating a totalSME portfolio of approximately EC$95M, orUS$34M distributed among 1,383 customers.These customers represents 18% ofregistered SMEs in St. Lucia

SME Loans represent $85.8M

SME overdrafts represent $9M

The SME lending portfolio represents 8% ofthe Bank’s total credit portfolio.

Average demand is estimated at EC$ 63,000 for small loan facilities and EC$ 460,000 for

medium-sized loans.

05

10152025

7.32.3 5.4

11.3

4 4.4

21.9

1.2

14.3

Amount Outstanding ($M)

Key Statistics:

SME Portfolio Quality: ◦ Productive SME loans: $79M (83% of SME portfolio) ◦ Non-productive SME loans: $16M (17% of

portfolio)◦ An improvement from 30% in 2008

Maintain vs Growhigh delinquency◦ In 2008 it was highly questionable whether the current

lending operations with the SME sector was financially viable.

◦ Delinquency rates of 30% called for a new initiative characterized by a much stronger focus on quality of transactions rather than increase of outreach as a primary goal.

Monitor trends Improvements in all business practices of SMEs

Focus on improving loan quality◦ Development of more risk-based policies

Further training and development for staffUnderstanding cash flowUnderstanding the Business

World economic crisisServices sector/tourism

Grow portfolio internally through cross selling and upselling

In 2008 Bank of St. Lucia collaborated with IFC (InternationalFinance Corporation) to introduce a new business concept forSmall Business Lending to BOSL. The consultation resulted inthe implementation of the following initiatives:

1. Fewer documentation required for creditAssessment

The SME assessment tool was developed out of the need tomake lending more accessible to SMEs that do not keepfinancial records or are unable to provide a business plan.

2. Enhanced Credit Assessment SkillsAll SME Lending officers, Credit Risk staff andManagement were trained in areas such as cash flowassessment, risk analysis, data gathering , interviewingMSMEs and portfolio management.

3. New Credit Policies for SMEsSME lending is now primarily cash flow based. Ability torepay based on past performance forms the key basis foradvancing credit.

4. A Dedicated SME Unit has been established

This team consists of Business Relationship Officersresponsible solely for the needs of SME clients.

This service is decentralized at all BOSL branches butoversight is provided by the Main branch.

Government of Saint Lucia◦ Establishment of SLDB◦ OPSR initiatives◦ Chamber of Commerce

The Private Sector◦ ECCB/ East Caribbean Enterprise Fund◦ RG Gen X fund

1. SME Coordinator

2. Product Development

3. Centralized Assessment and approval teams

4. Technical Assistance

Technical Assistance

The Bank has recently signed an agreement with CDE (Centrefor the Development of Enterprise) through its SAFFCprogramme, to offer Technical Assistance to SMEs of Bank ofSaint Lucia. This TA programme involves at 67%:33% costsharing arrangement between CDE and BOSL. The budget is$250,000 euros.

As a result of this initiative SMEs are expected to improveefficiency and profitability and become more attractive forSME financing.