The document summarizes key challenges facing SME access to finance in Saint Lucia based on a review of the country's financial sector and SME financing landscape. SMEs in Saint Lucia cite access to finance as the biggest obstacle to their businesses. The financial system is bank-dominated and there are gaps in non-bank financing options. Banks are weak and deleveraging while credit unions are growing but still small. Saint Lucia ranks relatively low in regional and global indicators related to access to credit.

1. Saint Lucia National Export Strategy
3rd Stakeholders Consultation
Access to Finance
22 November 2017
Subhrendu Chatterji

2. Internal
funds,
72%
Banks,
14%
Supplier
credit, 5%
Equity or
stock, 4%
Other
sources,
5%
Internal
funds,
74%
Banks,
11%
Supplier
credit,
11%
Other
sources,
4%
Worldwide, financing for SMEs comes significantly from
internal sources…..
2
SME financing of investments
All countries
SME financing of working capital
All countries
Source: What’s Happening in the Missing Middle? Lessons from Financing SMEs.
Ed. Salman Alibhai, Simon Bell, and Gillette Conner. World Bank Group. 2017

3. ….because there are structural and risk-related barriers to
accessing third-party/institutional SME finance
3
Supply
Banks/financial
institutions
Demand
MSMEs
Information asymmetries
and other external factors
 Low risk appetite
 Often weak risk assessment
capacity
 Relatively high processing
and monitoring costs
 Reliance on collateral
 Regulations
 Unsuited institutional
structures and operations
 Lack of competition
 Adverse cost/benefit trade-
offs.
 High risk of failure
 Short track record
 Relatively weak management
capacity
 Low ability to meet financier
admin. requirements
 Variability in performance/
cash flow
 Lack of equity and/or
collateral
 High transaction costs
 Unwillingness to dilute
ownership.
 Informality
 Weak accounting standards
(especially for SMEs)
 Short/no credit history
 Lack of credit bureaux
 Difficulties in enforcing
collateral
 Weak linkages in supply
chains
 Lack of alternative risk-
mitigation mechanisms.

4. A2F is consistently ranked as a ‘biggest obstacle’ by SMEs
4
Source: Access to Finance for SMEs. World Bank Ghana Office and ACET. Undated.
LAC EAP ECA MNA SAR AFR
Access to finance 15.3 18.1 14.2 10.6 13.4 21.4
Electricity 8.8 10.0 4.9 23.5 24.1 19.2
Tax rates 11.0 9.4 19.9 11.7 6.1 7.3
Political instability 6.6 7.8 12.8 12.9 18.1 6.5
Informal competitors 14.1 12.5 15.3 7.3 4.9 10.6
Corruption 7.3 4.3 7.2 10.0 6.4 6.6
Inad. educated workforce 10.3 10.4 6.1 4.7 3.6 2.7
Access to land 1.1 5.5 2.5 5.2 6.7 5.3
Crime, theft, disorder 9.1 5.1 1.5 0.9 2.8 5.3
Transport 2.5 5.3 2.2 1.4 3.6 3.8
Customs & trade regs. 4.3 1.9 3.0 3.5 1.8 3.5
Other 9.6 9.7 10.4 8.3 8.5 7.8
Percent of SMEs citing biggest obstacle (SMEs between 5‐100 employees)

5. LAC banks consider risk to be the biggest barrier to lending
to SMEs
5
Source: Evaluation of IDB Group’s work through financial intermediaries:
SME finance. IDB. 2016
Risk perception
Collateral
Funding
Others
Regulation
Costly to serve
What are the main barriers to serving SMEs?

6. Short-Term
Different external financing sources are appropriate for
SME life cycle stages and needs
Long-Term
Medium-Term
Micro Small Medium Large
Microfinance/
SME financiers
Formal, targeted by banksInformal, mainly targeted
by MFIs/CUs
Trade financing/factoring
Lease financing
Private equity
Capital markets
Bank financing
Financing
Needs
Firm
Size
6
Source: Micro-Small-Medium Enterprise Development in the Caribbean:
Towards a New Frontier. Caribbean Development Bank. 2016

7. Mechanism OECD CDB
BMCs
Comments
1. Loan guarantee schemes 100% 50% OECD very strong
2. Lending targets 0% 0% Not applicable
3. Export finance support 89% 63% Selective in BMCs
4. Credit: code of conduct 32% 0% Not used in BMCs
5. Credit registries 37% 37% Recent in 3 BMCs
6. Central bank schemes 10% 25% Barbados and OECS
7. Securitization support 16% 0% Not used in BMCs
8. Govt. direct lending schemes 53% 100% Initiated in BMCs
9. Govt. lending + pvt. sector 68% 0% Not in BMCs
10. Peer to peer support 42% 0% Not yet in BMCs
11. Retail bond market 26% 0% Very small in BMCs
Governments typically implement a multi-tool framework for
addressing SME financing gaps
7
Source: Micro-Small-Medium Enterprise Development in the Caribbean:
Towards a New Frontier. Caribbean Development Bank. 2016

8. Policy response Countries
Increased amount of government loan guarantees
and/or percentage guaranteed, number of firms
eligible, countercyclical loans
Canada, Chile, Denmark, Finland, France, Hungary, Italy,
Republic of Korea, the Netherlands, Slovak Republic, Slovenia,
Spain, Switzerland, Thailand, United Kingdom, United States
Special guarantees and loans for start ups Canada, Denmark, the Netherlands
Increased government export guarantees Canada, Denmark, Finland, the Netherlands,
New Zealand, Spain, Sweden, Switzerland
Government co-financing and/or pension fund co-
financing
Sweden, Ireland, Denmark
Increased direct lending to SMEs Canada, Chile, Hungary, Republic of Korea, Serbia, Slovenia,
Spain
Subsidized interest rates Hungary, Portugal, Russia, Spain, Turkey, United Kingdom
Venture capital and equity funding, guarantees Canada, Chile, Denmark, Finland, France, Hungary, the
Netherlands, Spain
Business advice, consultancy Denmark, Finland, New Zealand, Sweden
Tax exemptions, deferments France, Ireland, Italy, New Zealand, Spain
Credit mediation, review, code of conduct France, Ireland, New Zealand, Spain
Bank targets for SME lending, negative interest
rates for deposits at central bank
Ireland, Denmark
Central bank funding to banks dependent on net
lending rate
United Kingdom
For example, OECD countries have been fine-tuning their
policy tools to improve SME A2F after the 2007/8 crisis
8
Source: ADB–OECD Study on Enhancing Financial Accessibility for SMEs:
Lessons from Recent Crises. ADB. 2014

9. Innovative alternatives to conventional SME bank financing
are available, some of which may be feasible in St. Lucia
9
Source: New Approaches to SME and Entrepreneurship Financing: Broadening the
Range of Instruments. OECD. 2015
Asset-based finance
 Asset-based lending
 Factoring
 Purchase Order
Finance
 Warehouse Receipts
 Leasing
Alternative debt
 Corporate Bonds
 Securitised Debt
 Covered Bonds
 Private Placements
 Crowdfunding
(debt)
Risk
Return
Hybrid instruments
 Subordinated Loans/Bonds
 Silent Participations
 Participating Loans
 Profit Participation Rights
 Convertible Bonds
 Bonds with Warrants
 Mezzanine Finance
Equity instruments
 Private Equity
 Venture Capital
 Business Angels
 Specialised Platforms for
Public Listing of SMEs
 Crowdfunding (equity)
Low
Low
Medium High
High
Medium

10. SME finance remains high on the policy agenda
10
Source: Financing SMEs and Entrepreneurs 2017: An OECD scoreboard. OECD. 2017
 Credit guarantees remain the most widespread policy instrument and
their design is continuously being revised.
 Increased effort to stimulate alternative financing instruments, in
particular from capital markets.
 Increased focus to stimulate crowdfunding, mainly through changes
in financial regulation.
 Continued trend toward specifically targeting innovative firms with
high-growth potential.
 Financing is increasingly provided in combination with consultancy
services.
 Continued efforts to help SMEs access new markets through
internationalization.
 Supporting female entrepreneurs has become an integral objective
of many policies and programs.

11. Selected features
Saint Lucia financial sector and
SME A2F
11

12. St. Lucian SMEs see A2F as the biggest obstacle to
their businesses
12
ATG DMA GRD KNA LCA VCT
Access to finance 15.3 44.0 12.8 20.9 35.0 20.6
Electricity 13.0 29.7 2.7 15.2 22.4 10.6
Transportation 3.9 3.5 4.1 3.4 10.7 1.0
Inad. educated workforce 1.3 2.1 15.4 10.0 7.4 12.8
Tax rates 18.2 8.6 17.6 20.0 6.0 11.0
Source: Compete Caribbean OECS Project: Private Sector Assessment and Donor Matrix Report for St. Lucia. The Special
Studies Unit (SSU), Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), University of the West Indies,
Cave Hill Campus, Barbados. August 2013 (2010 data)

13. There are important gaps in the St. Lucia SME finance
institutional framework
13
Specialty
Micro &
SME
Financiers
Banks
offering ST
Loans
Trade
Finance
Lease
Finance
Equity
Finance
Capital
Markets
Comments
Development
Bank. Fast
Cash.
Laborie,
Choiseul
& Mon Repos
CUs,
AXCEL
Finance.
5 banks:
Scotiabank,
RBC, FNB,
Bank of
St. Lucia,
FCIB. No
credit bureau
or deposit
Insurance in
place
Available
from banks,
Laborie CU
and CU
League.
Not available Not available Not available
but there is
an OECS
Eastern
Caribbean
Securities
Exchange;
12 companies
listed.
Low
integration
and
incomplete
SME life
cycle finance
system. MFI
funds reach
less than
10% of
market.
Banks very
liquid.
Source: Micro-Small-Medium Enterprise Development in the Caribbean:
Towards a New Frontier. Caribbean Development Bank. 2016

14. The St. Lucia financial sector is relatively undiversified
and bank-dominated with significant personal lending
14
Commercial
banks,
149%
Credit
unions, 16%
Insurance
domestic,
15%
Insurance
offshore,
16%
Microfinance,
4%
Development
bank, 1%
St. Lucia: Selected financial institutions
(Assets as % of GDP, 2014)
Source: IMF Article IV report, 2015
Personal
48%
Professional
/other
services
16%
Tourism
10%
Distributive
trades
8%
Construction/
land dev.…
Public
administrati…Other
7%
% bank credit by sector,
2016
Source: Govt. of St. Lucia. Review of the Economy. 2016

15. ‐12%
‐8%
‐4%
0%
4%
0%
5%
10%
15%
20%
25%
2010 2011 2012 2013 2014 2015 2016
(Q3)
ROAE (RHS)
NPLs (LHS)
Banks are in a weak financial position
15
Source: IMF Article IV report, 2015
90
100
110
120
130
2010 2011 2012 2013 2014 2015 2016
(Q3)
Gross loans
Deposits
% of GDP
Banks have been deleveraging…. As they have been recovering from high
NPLs

16. Credit Unions are another potential source of finance,
but are still small and have their own challenges…..
16
439
480
53
23
505
537
56
27
Loans Deposits NPLs Share Capital
2014 2015
Source: Govt. of St. Lucia. Review of the Economy. 2015
Selected indicators for Credit Unions (EC$m)
Members:
2014: 83,397
2015: 91,530

17. The country ranks towards bottom in Caribbean in 2018
WBG Getting Credit rankings
17
Source: Doing Business 2018: Reforming to Create Jobs. World Bank Group
25.00: Antigua and Barbuda (Rank: 159)
25.00: St. Lucia (Rank: 159)
DB 2018 Distance to Frontier (DTF)
0 100
80.00: Jamaica (Rank: 20)
50.94: Regional Average (Latin America & Caribbean)
30.00: Dominica (Rank: 142)
30.00: Grenada (Rank: 142)
LCA ranks 127 in 2018 Resolving Insolvency rankings, with score of 35.83,
Just behind LAC average score of 38.95.

18. Access to credit ranks the lowest in St Lucia’s Doing
Business indicators
18
Source: Doing Business 2018: Reforming to Create Jobs. World Bank Group

19. St Lucia selected credit indicators vs region
19
Source: Private Sector Development in the Caribbean: A Regional Overview. EIU. 2015

20. St Lucia selected credit indicators vs region
20
Source: Private Sector Development in the Caribbean: A Regional Overview. EIU. 2015

21. St Lucia selected credit indicators vs region
21
Source: Private Sector Development in the Caribbean: A Regional Overview. EIU. 2015

22. St Lucia selected credit indicators vs region
22
Source: Private Sector Development in the Caribbean: A Regional Overview. EIU. 2015

23. St Lucia selected credit indicators vs region
23
Source: Private Sector Development in the Caribbean: A Regional Overview. EIU. 2015