Presented by Joanna Charles Assistant General Manager Bank Of Saint Lucia (BOSL)

This presentation will focus mainly on the Bank of Saint Lucias (BOSL) experience and development within the SME market in St.Lucia. Market Overview Eligibility of SMEs to access finance Overview of BOSL SME lending portfolio BOSLd 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, 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 % 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 % report having had loans from BOSL, followed by 10% from ScotiaBank % 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 % 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)

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

Despite the great potential of this market segment access to finance, that is, the ability to quality for available credit, remains a challenge for many SMEs. Based on an LFS research conducted in 2008 under the joint partnership of IFC and BOSL, more than half of the surveyed enterprises did not receive a bank loan over 3 years prior to This results from a generally low risk appetite for this business 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 poor performance 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 in St. Lucia, many SMEs are unable to access SME finance due to the above challenges. Many Financial Institutions, in particular commercial banks, adopt more stringent credit risk regulations 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 regarding SMEs either eliminate a significant portion of the market or result in high cost of financing for qualifying 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 SME sector there are significant benefits. Recognizing this, many Financial Institutions have begun to position themselves to better serve this sector while at the same time guarding against the inherent risks. Government and the private sector have also contributed to the development of this sector in an effort to enhance their attractiveness for financing.

Key Statistics: As at todays date BOSL is operating a total SME portfolio of approximately EC$95M, or US$34M distributed among 1,383 customers. These customers represents 18% of registered SMEs in St. Lucia SME Loans represent $85.8M SME overdrafts represent $9M

The SME lending portfolio represents 8% of the Banks total credit portfolio. Average demand is estimated at EC$ 63,000 for small loan facilities and EC$ 460,000 for medium-sized loans.

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 Grow high 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 staff Understanding cash flow Understanding the Business World economic crisis Services sector/tourism Grow portfolio internally through cross selling and upselling

In 2008 Bank of St. Lucia collaborated with IFC (International Finance Corporation) to introduce a new business concept for Small Business Lending to BOSL. The consultation resulted in the implementation of the following initiatives: 1. Fewer documentation required for credit Assessment The SME assessment tool was developed out of the need to make lending more accessible to SMEs that do not keep financial records or are unable to provide a business plan.

2. Enhanced Credit Assessment Skills All SME Lending officers, Credit Risk staff and Management were trained in areas such as cash flow assessment, risk analysis, data gathering, interviewing MSMEs and portfolio management. 3. New Credit Policies for SMEs SME lending is now primarily cash flow based. Ability to repay based on past performance forms the key basis for advancing credit.

4. A Dedicated SME Unit has been established This team consists of Business Relationship Officers responsible solely for the needs of SME clients. This service is decentralized at all BOSL branches but oversight 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 (Centre for the Development of Enterprise) through its SAFFC programme, to offer Technical Assistance to SMEs of Bank of Saint Lucia. This TA programme involves at 67%:33% cost sharing arrangement between CDE and BOSL. The budget is $250,000 euros. As a result of this initiative SMEs are expected to improve efficiency and profitability and become more attractive for SME financing.