New businesses are being established in Guyana and existing organisations are adjusting and realigning the services they are providing to better meet the needs of the growing oil and gas industry. However, many continue to face challenges with accessing finance from the banking sector.
Finance Specialist and Senior Advisor at the Centre for Local Business Development, Anthony Sinclair, has been working with the local business community and banking institutions towards making access to finance for businesses in the oil and gas sector easier. It was during these engagements that he was apprised of the difficulties facing businesses with access to funding, which have resulted from the banking system not being calibrated to the needs of the oil sector since it is new to Guyana.
“We have to recognize that the banking system was configured for a different kind of economy and different types of sectors—agriculture, mining and different types,” he said. “The oil and gas in particular is a new type of sector that requires different types of financing products in order to meet the needs of the way those businesses operate.”
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It was noted that many of the new suppliers and firms are at the start-up phase of operations and therefore developing a banking relationship takes time. Sinclair said some of the organisations have challenges because they don’t have the right profile in terms of the assets or the financial reports.
He added, “The cost of finance is still pretty high and it’s not an artificial high price, it is an economically derived price that’s based on risk. It’s based on the operating costs of the banks,” he pointed out. “It’s also based on the central bank policy rates and the central bank discount rates and reserve requirements and they’re not unusually high, it’s just, it’s a function of many different things so yes, cost of finance is high.”
In the traditional sectors, it was explained that the practice is to use mortgages in real estate. “…But in this type of economy that you’re seeking, companies have all sorts of assets, equipment, finance, inventories and it’s very typical in a developed country to be able to use different assets as collateral for loans,” he said.
For the financial institutions, making that shift is very important but they’re still very constrained in being able to meet the collateral requirements, he explained.
