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Retail banks are not the problem in small business start-up game, says Bowe

Access to financing opportunities and poor business plan development have contributed more to slow small business growth in The Bahamas than the supposed unwillingness of retail banks to use their liquidity to take on business development risk, Chief Executive Officer of Fidelity Bank Gowon Bowe told Guardian Business yesterday.

Bowe said although local retail banks are often criticized for not funding enough small businesses, the same could be said for retail banks in developed countries.

He explained that what developed countries have that The Bahamas does not is the existence of myriad funding mechanisms outside of the retail banking sector.

“The greatest hindrance to the financing of businesses is that we don’t have what I’m going to call the full gamut of financial institutions that you see in developed countries,” said Bowe.

“By that I mean we don’t have the venture capital institutions, the private equity funding groups and others that ultimately provide a wealth and depth of financing opportunities. Even in the advanced countries, the traditional retail bank is not where you find the funding of startups or the more risky businesses. That traditional bank, in building society, was one that really was the pooling of resources of depositors and shareholders that looked at established business that were looking to expand, but already had a history or pattern of cash flows that could actually be relied upon in terms of how they were able to fund themselves.

“When we move forward and we now are looking forward in terms of how do we expand access for startup businesses – and I’m gonna say businesses with a limited track record – we have to look at how do we expand the capital markets in The Bahamas to allow persons who are willing to invest in riskier ventures to pool resources.”

Bowe spoke to the development of instruments such as crowdfunding platforms like ArawakX.

While the opportunity exists for small businesses to access funding through retail banks, in most cases they have to be backed by the government guaranteed loan program provided by the government-run Access Accelerator/Small Business Development Centre.

Bowe contended that retail banks are, in most cases, not the solution to funding start-up businesses in The Bahamas.

The Inter-American Development Bank (IDB) released a report on Monday that found that access to financing can lead to economic growth and job growth in Caribbean countries. But the report found that entrepreneurs have been frustrated by the red tape involved in securing funding and the cost of funding.

Bowe said local entrepreneurs have to begin to get creative when seeking to raise funds. He added that many more equity funding groups also need to be developed in order to meet the needs of those entrepreneurs.

“The question is not how do we get businesses eligible for funding from financial institutions, because we’re looking at the retail banks as being the solution,” he said.

“We need to say, how do we get individual retail savers and investors to be able to collectively pool their resources in order to provide alternate financing that we don’t traditionally do in The Bahamas. And that’s really where we need to turn the dial. Having the technology and platforms that allow for crowdfunding and the vetting of businesses… those are the things we need to promote and stimulate, by saying how do we get the greatest amount of investment and deployment of resources in those types of activities, so that we expand the access pool for persons who are seeking investment.”

Bowe said entrepreneurs also need to look at the quality of business plans they are putting together.

“Just because I have a wonderful dream does not make it funding worthy.”