By NEIL HARTNELL
Tribune Business Editor
The Bahamas Development Bank (BDB) faces being “wound up”, at least in its present form, under a radical proposed restructuring of the Government’s small business support services that is tied to implementation of new legislation.
Tribune Business can reveal that the first draft of the proposed reforms, which has been circulated among private industry stakeholders, envisions the new Small and Medium-Sized Enterprises Development Agency (SMEDA) becoming the “successor” to the BDB.
The BDB, which has a delinquency ratio of more than 50 per cent on its existing $50 million loan portfolio, would cease to extend any new credit to entrepreneurs/small businesses and instead focus solely on managing its existing book.
And all its existing functions would be “amalgamated” into SMEDA, which will be created by the proposed Small and Medium-Sized Enterprises Development Bill.
Confirming these initial plans, Edison Sumner, vice-chairman of the Government-sponsored Bahamas Entrepreneurial Venture Fund, told Tribune Business: “The proposal as it stands now is that the Bahamas Development Bank will be wound up after a period of time.
It is not the intention under the draft version that the BDB will expand its portfolio any larger than it is. It will become an operator to manage the debt it already has, and make efforts to recover its bad debt portfolio. It will not be expanding its portfolio beyond what is already on its books.”
“It will not necessarily be merged with the venture capital fund, but they’ll both be operated under the SMEDA.”
He added: “The anatomy of the [venture capital] fund will remain as is; it will retain its own Board of Directors, its own budget etc.
“The SMEDA proposal is to have the existing BDB Board role into SMEDA, and that is being met with some resistance by stakeholders in the industry.”
Mr Sumner disclosed that the Small Business Association, and representatives of the venture capital fund, BDB and Bahamas Agricultural and Industrial Corporation (BAIC), met with Ministry of Finance officials last week to receive the draft proposals and hold initial discussions on them.
All present were “given some mandates and timeframes” in which to provide feedback and submissions on the proposals.
Mr Sumner added that the venture capital fund would continue to take equity investment positions in businesses that it funded, with SMEDA being headed by a chairman and chief executive appointed to run the agency.
Anthony Woodside, the Bahamas Development Bank’s (BDB) managing director, told Tribune Business that the proposals - when implemented - would “change the way they fund small and medium-sized enterprises”.
He suggested that the BDB would be combined with the venture capital fund, although that is not backed up by a copy of the consultation document obtained by Tribune Business.
“Based on the draft, it seems like an amalgamation of the BDB and venture capital fund,” Mr Woodside said, emphasising that “nothing has been finalised”.
Tribune Business understands that the Government is concerned that SMEDA will not need as large a staff as the BDB, raising questions of what to so with the latter’s workforce, as it will wish to avoid redundancies.
Mr Woodside, meanwhile, confirmed that the BDB’s delinquency ratio was over 50 per cent, as it has been for several years.
With a total outstanding loan portfolio of around $50 million, he acknowledged that $25-$30 million worth of loans were delinquent.
And the BDB managing director added: “The paper is saying that SMEDA will be divided into three different entities.
“One of those entities will be responsible for collecting the old debts, and trying to liquidate what can be liquidated over a certain period of time. I’m not sure how that’s going to pan out.”
Mr Woodside said SMEDA would be focused on providing guarantees and vetting applications by entrepreneurs/small businesses,, rather than lending money itself.
A copy of the Ministry of Finance’s proposal, drafted by attorney Merritt Storr of Chancellors Chambers, shows how the Government wants to move from a position where its agencies finance small businesses themselves to one where they simply vet and prepare entrepreneurs’ business plans, provide technical support and present them to commercial lenders.
“In an attempt to think outside the box and to embrace the possibility of radical change, the idea was that SMEDA would become the Government’s supreme and primary SME (small and medium-sized enterprises) development vehicle,” the consultation document said.
“Public support for SME development in the past has been focused primarily on loan funding through the Bahamas Development Bank (BDB). It is now accepted, however, that this is not sufficient for the orderly development of SMEs. Business development support is critical.
“SMEDA therefore was envisioned as a successor to BDB, adopting the role that most closely resembled a one stop shop for SME development.”
The Government is also proposing a changed role for BAIC.
“The Bahamas Agricultural and Industrial Corporation would continue to offer specialised technical support in the area of agriculture, and would retain responsibility for the management of industrial parks , but new project support and advice would be transferred to SMEDA,” the consultation document reveals.
“Further, SMEDA was designed to minimise any need for government subvention above what has been agreed by the Minister in the beginning of its funding cycle.
“In this regard, it would have a limited ability to leverage its balance sheet to offer loans and guarantees for certain private sector loans that fulfill specific criteria.”