Archive for July 2016

Surviving the Next Financial Crisis 101: De-Risking in the Caribbean

27
JUL

Written by

By Allan Wright

In this interview, Allan Wright, Country Economist at the IDB, discusses the impact of de-risking strategies on the Caribbean. Below you will find a short summary of what he discussed:

What is the problem?

De-risking is the termination of or the restriction of business relationships to avert risk related to anti-money laundering (AML) and the counter financing of terrorism (CFT).[1]

Why should the Caribbean pay attention?

International institutions have been the subject of regulatory censures as a result of deficiencies identified within their AML/CFT frameworks. Penalties and fines have increased and as a result, financial institutions have looked for ways to address these deficiencies. One of such ways is the termination of business relationships with certain businesses and regions considered to be high risk.

A World Bank study (2015) revealed that the Caribbean appeared to be the region most severely affected by the de-risking strategy adopted by international banks. Indeed, a number of banks in the Caribbean have recently experienced the termination of relationships with international correspondent banks. While this may not have resulted directly from AML/CFT issues, many large international banks consider their business with the region as either high risk or unprofitable.  As a result, banks have ceased to offer their services or have restricted the type of services offered to the domestic banks in the region.

How much of an impact does this have on our people and businesses?

Globalization and technology allow countries to conduct business, despite the distance between them. Correspondent banks facilitate international transactions by providing access to the global payment and financial system. Such transactions include remittances, credit card payments, foreign direct investments and international trade in goods and services. These transactions contribute significantly to the region’s growth and development.  Therefore, the loss of these relationships could, therefore, threaten the regional banking sector as banks would no longer be able to conduct international transactions on behalf of their customers.

Similarly, for regional economies, trade facilitation would be stymied resulting in the inability for countries to import essential basic goods such as food and medicine, which could ultimately destabilize regional economies.

De-risking has already affected certain classes of business, clientele, and jurisdictions throughout the Caribbean. One correspondent bank has ceased to conduct business with money service businesses (cambios) and cash intensive businesses (money transfers). Some regional branches of international banks have also started de-risking within the jurisdictions in which they operate. The services offered to credit unions, building associations and third party transactions on behalf of lawyers and other service providers are no longer facilitated.

Do people know what’s going on?

De-risking has generated much discussion among international and regional financial institutions including Central Banks, the Financial Stability Board (FSB), The World Bank (WB), the International Monetary Fund (IMF) as well as the Caribbean Community (CARICOM), to facilitate an understanding of the complexity and multi-dimensional nature of the problem of de-risking. The FSB has proposed the following four-point plan:

  1. a further examination of the issue;
  2. clarification of regulatory expectations;
  3. capacity-building in jurisdictions where respondent banks are affected; and
  4. the strengthening of tools for correspondent banks to perform due diligence checks.

What are Caribbean Governments doing?

CARICOM is fully committed to the international processes of financial reforms and has embraced the FSB’s four-point plan for addressing de-risking. At its most recent meeting in July 2016, the CARICOM Heads of Government agreed to a new approach for addressing the threat of bank de-risking. The CARICOM Committee of Finance Ministers proposed the establishment of a global forum in the Caribbean to bring the various stakeholders together, including correspondent banks, respondent banks, the regulators, policy makers and non-government organizations which have been adversely affected by de-risking.

Furthermore, the Committee has communicated with the United States Government officials and the US Treasury Department regarding clarification about the nature of the issues giving rise to the heightened risk aversion towards Caribbean transactions by US regulatory authorities.  Also, there has been regional participation and advocacy at high-level fora including the WB, IMF, FSB, meetings of the CARICOM Heads of Government and Central Bank Governors.

What are Caribbean regulators doing?

Regional regulators have also participated in high-level discussions with the international financial institutions as well as international regulators. Regulators have also implemented strategies which are specific to their respective jurisdictions.

A CARICOM Central Bank Governors’ Technical Working Group on De-risking was established to document and analyze the impact of de-risking strategies on regional financial systems. They prepared a background paper on the issue of de-risking which was recently published by the Caribbean Centre for Money and Finance.

 It can’t be too late… can it?

While some regional banks have already received official notification of the imminent termination of relationships, most of the affected banks have already commenced establishing new relationships with other international banks. Government officials and regulators continue to canvass and participate in high-level fora towards determining the best approach for addressing the de-risking issue. As legislation continues to evolve, more banks may eventually adopt the de-risking strategy as an alternative response.

We’re all going to be affected — what should we do now?

De-risking is a hot button issue which continues to affect all sectors of the regional economies.  Information can be gleaned via various links on the internet including those of various international regulatory bodies such as FATF, the IMF, the WB; regional organizations such as CARICOM and the Caribbean Development Bank, inter alia.

 

Alternately, you can contact the Caribbean Economics Team (CET) of the Inter-American Development Bank at cet-economics@iadb.org

[1] According to the Financial Action Task Force (FATF)

Caribbean Girls Run Tings: Boosting Sales Growth

20
JUL

Written by

By Inder Jit Ruprah 

Copia de Boasting sales growth in business (5)

 

 

Most studies on women-owned or -managed firms have found that such firms perform more poorly than do men-owned or -managed firms. However, a forthcoming report by the Inter-American Development Bank[1] has found some interesting data on Caribbean firms led by women. Indeed, unlike other regions in the world, Caribbean firms led by women have higher sales growth than firms led by men.

According to the report, for a 10 percent increase in the incidence of female-owned business, growth sales, and hence employment, would increase by 1.6 percent in tourism countries and by 0.8 percent in commodity countries. On the other hand, if the number of firms managed by women was to increase by 10 percent, sales growth would increase by 0.5 and 0.8 percent for tourism and commodity countries, respectively.

Country-level indicators suggest that gender parity, understood as relative access to education of males and females, is similar to the Caribbean and other small economies. Also, the participation of Caribbean women in management positions in the private sector is close to the average of small economies. Therefore, further analysis is needed to identify how Caribbean businesswomen are different from their peers around the world and how these characteristics contribute to their success in business.

 

[1] “An Engine of Growth? The Caribbean Private Sector Needs More Than an Oil Change”

 

 

3 Reasons why you should stop eating Parrotfish

11
JUL

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By Rachel Boyce

After living in Jamaica for five years, every time I visit for work, I try to squeeze in whatever time I have to say hello to friends.

On my last visit, I was very fortunate to have meetings on both sides of the weekend allowing me to spend my off days in a familiar place with familiar people. My friends and I decided to take advantage of this rare opportunity and head east to Hellshire, a popular Jamaican hang out spot along the coast, known for its fresh fish and other seafood done to order. To my great surprise, or rather disappointment, my friends all requested “parrotfish”, without remorse.

To many consumers, parrotfish is a saccharine delight, which in Jamaica is usually prepared whole and either fried, steamed or brown stewed. To ichthyologists, parrotfish are colorful and insatiable herbivores that spend around 90% of their day eating algae off of coral reefs. To environmentalists, parrotfish are sand machines, turning the coral they eat into … you guessed it: sand!

What I found was that my friends, who form part of the consumer group described above, did not intend to infuriate environmentalists. They simply did not understand the impact of their “delights” on the environment and the importance of preserving this species. This blog is what I tried to convey in my discussion with them.

Bi-colour_Parrot_Fish_(Terminal_Phase)_Male_Feb_2016Source: Wikicommons

Here are 3 reasons why we should immediately stop the consumption of parrotfish.

  1. The first one was already mentioned. Parrotfish “discharge” up to 100 kg of white sand a year for every year of their lives. Larger parrotfish are like sand factories, producing upwards of a tonne of sand per year. The University of Exeter found that parrotfish produced more than 85% of the new sand-grade sediment on the reefs in the Maldives. When we consider the impact over thousands of years, imagine the amount of beautiful white sand parrotfish can produce if they were allowed to live and not consumed. This is very important in avoiding beach erosion. Worms, sponges, and oysters also produce Pacific Ocean sand, but no animal is as proficient as the parrotfish. This also becomes irrelevant when we consider that Jamaica is not in the Pacific!
  2. Parrotfish are also essential to the survival of coral as they act as ‘natural cleaners’ of parasites that grow on it. Without the help of the parrotfish, the coral would simply die. According to a 2012 study, the loss of parrotfish disturbs the delicate balance of coral ecosystems and allows algae, on which they feed, to smother the reefs. The study also found that Caribbean corals have declined by more than 50 percent since the 1970s and may disappear in the next 20 years as a direct result of the loss of parrotfish and sea urchins — the area’s two main grazers — and not primarily as a result of climate change, as is widely believed. The study further shows that some of the healthiest Caribbean coral reefs are those in areas where governments “have restricted or banned fishing practices that harm parrotfish, such as fish traps and spearfishing”. These include the Flower Garden Banks National Marine Sanctuary in the northern Gulf of Mexico, Bermuda and Bonaire.
  3. Last but not least, let us consider the economy. A 2015 study noted that the direct contribution of travel and tourism to GDP in Jamaica was JMD128.3bn (8.1% of total GDP) in 2014, and was forecast to rise by 4.7% in 2015, and to rise by 4.6% pa, from 2015-2025 to JMD211.2bn (11.6% of total GDP) in 2025. Another study describes the importance of coral reefs to the people and economy of Jamaica. It shows what most of us already know: Coral reefs help to build and protect Jamaica’s beautiful white sand beaches, which attract tourists from around the world. Reefs provide critical habitat for Jamaica’s artisanal and industrial fisheries and also protect Jamaica’s coastline — including coastal communities and tourist hotels — from the destructive force of tropical storms. In other words, eating parrotfish has a direct impact on the economy. Tourists travel to Jamaica for much more than reggae music and delirious, irie ‘rastas’; the diaspora takes care of that! They travel for the sand and the sea. Tourism depends on the beaches, and the beaches depend on the coral, all made possible by this voracious species. By consuming parrotfish we rob the beaches of their sand, and in turn, harm the economy.

Picture2beach

Source: Ramon Zamora

Caribbean reefs generate more than US$3 billion annually from tourism and fisheries. For years, there have been discussions on taking strong action for ocean conservation, not just for saving parrotfish, but also for establishing marine reserves. While it has been proven that restrictions and other bans on parrotfish capture have helped protect the environment, we cannot just patiently wait for the laws to change.  When our habitat is affected, we are affected, and when the economy faces challenges, the effects will certainly be upon us and future generations. Just like my friends – after a better understanding of the issue – vowed never to have parrotfish again, I hope that you too decide to forego parrotfish in the future. Red snapper, maybe?

red snapper

Source: Rachel Boyce

The Agrimonitor initiative has also decided to do its part and expand its scope to include the monitoring of policies that regulate and support the fisheries sector. The first worldwide application of the Producer Support Estimate methodology to fisheries is about to be implemented and the first country to be analyzed could not come from anywhere else than the Caribbean. Stay tuned for news from The Bahamas in the upcoming months!

How your Small Business can get a loan in 48 hours*

4
JUL

Written by

 

 

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Sitting left to right: Peter Odle, Chairman of The Mango Bay Group, Eduardo Sierra, IDB Team Leader , and Ian Collymore, Project Coordinator, Central Bank of Barbados; Standing: Meryl Stoute, Team Leader of RBC’s Business Banking and Ian Knight, IDB External Consultant

 

RBC Royal Bank and First Citizens Bank are the first financial institutions to use the new and improved Enhanced Credit Guarantee Fund , which is projected to benefit over 200 businesses.

The Enhanced Credit Guarantee Fund is an innovative financial tool created to assist small and medium enterprises. It is backed by a BDS$70 million loan financed by the  Inter-American Development Bank (IDB) and executed by the Central Bank of Barbados.

Incorporated business entities from any sector can use the fund to guarantee up to 80% of their loan and up to a maximum of BDS$2 million per guarantee.  The fund can be used to finance the purchase of land and buildings, equipment and machinery; the expansion and improvement of infrastructure; the implementation of new technology, techniques and processes; and to increase permanent working capital, which is tied to an investment operation.

RBC Royal Bank’s client, prominent hotelier, and businessman Peter Odle, Chairman of The Mango Bay Group said that he was “ blown away” by the swift turnaround time from application to approval of the loan. “The Mango Bay Group’s loan is to retrofit the company’s newest hotel property, The Sands, with a photovoltaic electrical system.  I truthfully thought that it would take forever to get the loan when I applied, however, in two days I heard back from RBC with the good news.  More people need to know about this facility because until the bank recommended it to me, I had no idea that it existed,” Odle said.

He further added, “At the start of this project, when we found out that we had to do the PV system separately, I said I didn’t know if it was going to happen because I didn’t know where we were going to get the funding for a renewable energy investment. Even though there is a lot of equity in the project, because one bank has its security, they are not prepared to take anybody as a co-broker. It truly becomes a nightmare raising additional funds for this investment, so the Enhanced Credit Guarantee Fund is a Godsend,” said Odle.

Meryl Stoute, Team Leader of RBC’s Business Banking, commended the IDB and the Central Bank on the execution of the Fund. “Having the guarantees done this way where the financial institutions have the ability to do the approval on our own, you all having the confidence in the financial institutions that we know what we are doing as well as the process now being facilitated via a new on-line technology where we could just sit down, insert the information and send it off, are major plusses for the Fund,” Stoute said.

Stoute further added that RBC appreciates the improvement to the structure of the guarantee when compared to former guarantee schemes.   “The Enhanced Guarantee is structured so that the financial institution gets back technically the 100% of the 80% that is guaranteed which gives us more confidence because before there were issues as to what happens so we are a lot more comfortable with this guarantee.  We want to thank the IDB and the Central Bank for coming together and pulling this through.  Hopefully, with what we are doing now people would see that it is accessible, and hopefully, that adds to more development and more use of the guarantee,” said Stoute.

IDB Team Leader Eduardo Sierra thanked Stoute for being a trailblazer of the Fund.  He said that in the initial stage that word of mouth endorsement will be very important to the program.  “We are delighted with the positive feedback from both RBC and your client.  Your endorsement is critical at this stage as it creates confidence in the Program. Confidence that the guarantee fund is going to work and it is fast and reliable for the SMEs, beneficiaries and the banks. It is important to spread this message,” said Sierra.

Sierra said that the Fund is expected to be executed for another four years with the IDB provision.  “We have many businesses to support in Barbados as we have the goal of reaching more than 200 businesses during the Program execution.”

Ian Collymore, the Project Coordinator, said that the approval of the guarantees was virtually automatic as the Central Bank relied on the financial institutions to do the necessary due diligence on their clients. “The application and approval systems are all online, and as long as all the necessary information is submitted by the financial institutions, the approval is done very swiftly.”  Collymore further added that the Central Bank provides a variety of facilities to support businesses as it recognizes the importance of sustainable business to the development and growth of the economy.

 

First Citizens on board The Enhanced Credit Guarantee Fund

First Citizens Bank has joined RBC as being a pioneer of the Fund.  Senior Manager at First Citizens, Kaye – Anne Brathwaite said the Bank is always looking for ways to help its customers. “At First Citizens, we put the customer first, we saw that the Enhanced Credit Guarantee Fund had the potential to help some of our small business clients.  We are very pleased with the system as it is very straight forward and being online, we are just required to enter the information.  I am particularly satisfied with the fast turnaround time for the loan approval, it’s fast, transparent and easy to register,” said Brathwaite.

Rene Wade, Managing Director of Motofitt Inc. is First Citizens Bank’s first client to receive a loan using the fund as collateral.  Wade said that he was shocked at the speed of the entire process, from application to approval.  “My business was in operation for two to three years, but it was last year that I decided to take it on full time.  The demand was there for more specialized vehicles especially by expats and persons new to the island.  To purchase the fleet of vehicles to adequately service clients, I needed a loan.  This was the first time I was trying to get a corporate loan.  Before I got personal loans to back my business and it was hard getting some bankers to understand and share your vision, even the bank you use.  First Citizens made it easy.  On my side, it was just getting everything together that they needed.  Once I had everything finalized, I received a decision within the first week,” Wade said.  In addition, First Citizens has facilitated Motofitt Inc. with an overdraft facility to ensure its sustainability and to assist it with its day-to-day operating needs.

First Citizens’ Lending Officer, Omolara De Riggs-Morris admitted that it is sometimes harder for some SMEs to get loans because they often lack the collateral required by the financial institutions.  She said the fund would make applying for loans easier for this group.  “In Wade’s case, he had very good accounting information, so the process was easy.  Small businesses need to maintain proper accounting records because this is one of their primary requirements when applying for a loan,” De Riggs-Morris said.

IDB Team Leader Eduardo Sierra said that all financial institutions could participate in the fund.  “We launched this fund in February, and there has been skepticism by the financial institutions emerging from their previous experience with other guarantee schemes.  We are, however, pleased that First Citizens and RBC have placed their customer’s interest first and have used the fund, which will help to improve productivity, employment, and the economy of Barbados.  We would like to commend these two financial institutions for leading the way to empower the business and entrepreneurial community,” Sierra said.

 

How the Caribbean Sea Can Help Improve Lives Financially

1
JUL

Written by

By Elizabeth Rodezno and Carina Cockburn

Picture1

Montego Bay, Jamaica – Photo by Ramon Zamora

Did you know that the Caribbean is a place where 70 percent of those who fish or work on the waters do not even know how to swim? In fact, some in the Caribbean see the Sea as more foe than friend.

Over the past few years, the term “Blue Economy” has gained traction. For some, it refers to any economic activity in the maritime sector, whether sustainable or not.  Here at the IDB, the Blue Economy means the use of the sea and its resources for sustainable economic development, while significantly reducing environmental risks and ecological scarcities.

The Caribbean Sea is an eco-system that both divides and unites 36 countries making it a challenge to administer the related resources.  A paradigm shift in the Caribbean is essential so people feel a sense of ownership and a greater connection to their Sea.  One way of looking at this is to think of the Caribbean not just as a group of islands or countries but as a group of eco-systems with the sea as its main system.   This could help us develop a more coherent and integrated approach to managing the economic development of the sea.

Unfortunately, although the Caribbean Sea provides jobs and nutrition, it is under pressure from human activities and is being further threatened by development approaches that are fragmented, uncoordinated and often in conflict with what science tells us is possible or ecologically sound.

How is the IDB addressing the sustainability of the Blue Economy? 

On June 22, 2016, the IDB’s Caribbean Country Department (CCB) and the Institute of Caribbean Studies (ICS) held a meeting with members of the Caribbean diaspora to initiate a paradigm shift in development thinking in this area.

Picture2

Photo by Carina Cockburn

IDB has focused on several “blue economy” opportunities including marine tourism industries, coastal zone management, renewable energy, and sustainable housing and infrastructure. IDB’s Michael Donovan, a Housing & Urban Development Senior Specialist, is currently working on Coastal Cities Programs.  His most recent work, The State of Social Housing in Six Caribbean Countries was distributed at the event.  Greg Watson, a lead Specialist at the Multilateral Investment Fund (MIF), detailed how they are working closely with the private sector on innovative projects including the production of sponges in the Bahamas. This involves simple training of divers to remove sponge by cutting rather than pulling, which allows the sponge to regenerate and become a sustainable industry.   Gerard Alleng, a Climate Change Senior Specialist, spoke about what the IDB is doing to address climate change and indicated that effective management of the Blue economy in an integrated manner would help countries meet their commitments made in France.

Picture3

Members of the diaspora spoke about the links between the blue economy and other areas of interest to the region including (i) the green economy in Guyana focusing on the ongoing implementation of their Low Carbon Development Strategy and the expansion of eco-tourism there; (ii) maritime education offered through the Caribbean Maritime Institute, which provides opportunities to young people from poor communities and helps to strengthen the capacity of fishermen and other maritime workers; (iii) the orange economy and the need to mainstream arts education in schools, place music within a historical context, build on similarities in culture in countries that share the Caribbean basin and transform the arts into a net income earner for the region; and (iv) facilitating learning across countries using technology as the base for educational programs while attracting students and businesses to come to the region.

Now that the conversation on the blue economy has started, it is clear that the diaspora is thinking about how their relationship, intellectual, and remittance capital can be harnessed to assist in making the needed paradigm shift.  In the face of climate change and the need to find new paths to prosperity, this is a vital start to identifying a shared vision for achieving the UN Sustainable Development Goals and an inclusive prosperous Caribbean.

 

 

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The views expressed in this blog are those of the author and do not necessarily reflect the views of the Inter-American Development Bank, its Management, its Board of Executive Directors or its member Governments.

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