The Cayman Islands Development Bank is currently unable to offer loans to small businesses, according to Commerce Minister Wayne Panton.
Mr. Panton said the bank’s resources had been squandered in the past through bad decisions and compromised lending policies because of political influence under the previous administration.
Speaking to the Cayman Compass during the Small Business Expo on Saturday, he said it is not currently a viable option for the bank to offer business loans – the primary function of development banks in most jurisdictions.
He said a new board had recently been appointed in an effort to get the bank back on track, but it would be a few years before the government had funds to consider investing in using the bank as a tool to stimulate small business growth.
“Government does not currently have the resources to make money available to recapitalize the bank to a level that would allow it to make credit available to small businesses,” he said.
“At this point, small business loans are not possible.”
Mr. Panton said the government was attempting to provide incentives to small business by reducing licensing fees and providing support through the Department of Commerce and Investment.
But he acknowledged that startup capital is the biggest stumbling block for a lot of young entrepreneurs.
He said private equity firms and commercial banks are currently the only option, though many small businesses use private savings or family money to get their idea off the ground.
Government still hopes, ultimately, to be able to use the development bank to help small businesses get started.
“The development bank should ideally have a small business loan program. If the resources were in place, in combination with the efforts of DCI, it would be amazing for small businesses and for the economy in this country,” Mr. Panton said.
“The problem it has is that its resources have been squandered in the past through bad decisions and bad lending policies. They have some significant non-performing elements with their current loan program and the reason for that is political indiscipline.”
Janet Hislop, a director at Deutsche Bank, has been appointed the new board chair for the development bank, which had been without a chair since 2012. Lynne Whittaker, of First Caribbean Bank, is the new deputy chair.
Wil Pineau, chief executive officer of the Chamber of Commerce, said it is important that the bank’s future is sorted out.
“It has taken on different functions over the years, and I think we need to make a decision on what it will be in the future and if it can become an entity that can be relied on by small business for financing,” he said.
In a policy statement in November 2014, Finance Minister Marco Archer indicated that government plans included paying off $10 million in development bank debts early, while likely refinancing the remainder of the bank’s $30 million bullet loans that come due during 2015. A consultant’s report on cutting the cost of government suggested closing the development bank if the “political will” could not be found to support its operations.
The Ernst & Young report considered three options. First, that it could be sold to a private sector entity; second, that it could be “recapitalized” and potentially commercialized through a private-sector partnership; and third, that it could be closed.
The report said, “Political support and action is the driver for change. If there does not exist a political will and support for the mandated functions of [the Cayman Islands Development Bank] endorsed by additional capital, then the whole service offering and function … can be abolished.
“There is no long-term benefit to [the development bank] continuing to operate in this existing state – which is effectively a run-off of the historical loan book with a very small amount of new lending.”