Stabroek News
January 24, 2016
In last week’s column, it was noted that small businesses make up a substantial part of the Guyana economy. The column this week highlights some of the trends noticeable in the small business sector. The trends show up in the distribution of loans between men and women, between age groups and between sectors of the economy. These trends help to identify the demographic aspects of small businesses and something about their contribution to the economy. It is reported that small businesses account for about 50 per cent of the businesses in Guyana and those with a relationship with IPED contribute about five per cent to the economy. With small businesses making up such a large portion of economic participation, the study of this aspect of the life of small businesses could provide also clues to some of the social and cultural dimensions of life in the Guyana economy.
Male dominance
20160124mr lucas logoIn Guyana, there is an indication that male entrepreneurs are dominating the small business borrowing world. However, this is a trend that has shown some signs of real change over the years. The Institute of Private Enterprise Development (IPED) is the largest lender of small business loans in Guyana. It categorizes its borrowers by gender and places them in three categories, namely male, female and loans taken jointly by male and females. Statistics taken from IPED’s Annual Reports and those of the Bank of Guyana reveal that in any year from 1986 to 2015 men received about 42 per cent of the loans granted while women received 31 per cent. Men and women who jointly borrowed loans received an average of 27 per cent of the loans during the review period.
A grouping of the distribution of loans into five-year periods indicates that it was only one time from 1986 to 2015 that the number of loans taken by women outnumbered those taken by men. This observation surprised some colleagues as it did this writer, given all the attention that women entrepreneurs receive in the country.
Interestingly though, there was a surge in the number of loans taken by women in the years 1996 to 2000. In that five-year span, women alone took 53 per cent of the loans while men took 21 per cent and the joint category took 26 per cent. Prior to and after that period, the participation of women borrowers alone in the loan market has remained below that of male borrowers. In the 10-year period from 1986 to 1995, women borrowed 19 per cent of the loans while men gained access to 53 per cent of the loans granted by IPED. The joint category accounted for the remaining 28 per cent.
Close the gap
Despite the dominance in the small business loan market by men, women borrowers were able to close the gap in later years. From the period 1996 to 2015, women were granted an average of 31 per cent of the loans while men got an average of 42 per cent. The joint category remained relatively stable at 27 per cent. The cause of the shift in lending towards women is not clear, even though one could acknowledge that several initiatives aimed at aiding women entrepreneurs were implemented over the years. The special loan programme known as Women-of-Worth (WOW) is one that comes to mind. One thing that must be kept in mind also as the loan distribution is assessed, is that women could be the lead entrepreneurs in many instances in the joint category of borrowers. This means that the impact of women on the loan market could be much greater than revealed by the statistics.
Age of borrowers
20160124lucas tableThe age of borrowers is another factor in the loan market for small businesses that says something about the lending culture. In Guyana, small business loans are concentrated among persons who are in the age group above 40 years. The data for 2013 show that 37 per cent of loans went to persons who were below the age of 40 and that 63 per cent of the loans went to persons above the age of 40. The cause of this distribution structure might be linked to two factors. One is possession of collateral and the other might be connected to experience.
Older borrowers
Though not required in all cases, the ability to provide collateral to back a loan request might be the reason that older persons obtain a greater share of loans in comparison with younger persons. Older borrowers, particularly those of working age, were more likely to have more assets capable of supporting a loan request than younger Guyanese. Younger borrowers might be concentrating more on building their asset base through third-party employment and not through self-employment. They might feel that they do not have enough money to pursue an independent path to economic livelihood.
The other factor might be experience. Many entrepreneurs develop new ideas while performing duties in a place of employment. They discover gaps in production processes or supply opportunities stemming from weaknesses in the supply chain. They develop new products from existing ideas. Taking the Schumpeterian view of entrepreneurs, they would be innovators. They revolutionize the pattern of production. They open up new sources of supply and they break up old and introduce new traditions in business. More modern writers believe that the knowledge gained in the workplace is what makes it possible for entrepreneurs to emerge with new ideas and knowledge. It would be of no surprise to find experienced Guyanese workers having better ideas which are conceptualized and packaged better for loan approval.
Agriculture’s dominance
Almost from the inception, agriculture has dominated the small business loan market. Of the 11,640 loans given out between 1986 and 1997, agricultural and allied activities obtained 50 per cent of the loans. The rest of the loans were distributed among the other sectors of the economy. Agriculture continues to dominate the small business loans granted by IPED. In 2013, agriculture was responsible for nearly 51 per cent of the small business loans granted by IPED. The share dropped slightly to 49 per cent in 2014. Rice was the principal product to gain most of the loans in the agricultural sector. It accounts for about 52 per cent of the agricultural loans.
In discussing the contribution of a single industry, the distribution profile changes. The distribution services received the largest share of the loans granted by IPED since 2004. It should be noted that the distribution services received about 30 per cent of the loans while rice received about 28 per cent.
Further study
Further study of the small business sector would help to determine the extent to which the sector could be used to penetrate the economy. A study is needed also to understand the nature and strength of the linkages between small businesses and larger businesses. If the linkage is weak, then the economy might not benefit significantly from small business growth. Or if it does, the benefits will be slow in coming. However, if the linkages are strong, then the sector might be capable of spurring economic growth. In depth studies of the sector are needed to better understand how the small business sector can add to growth and fight poverty.