The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian financial profligacy has left this nation at the mercy of foreign developers whose increasing demands for Government concessions are “contrary to the interest of the Bahamas”, a well-known businessman believes.

Franklyn Wilson, the Arawak Homes chairman, told the St Barnabas Parish congregation at the weekend that the consumer borrowing binge by Bahamians, coupled with the banks’ preference for such loans, had undermined the growth of Bahamian-owned businesses.

With the latter form of lending perceived as carrying greater risk, Mr Wilson implied that the productive, job-creating sectors of the Bahamian economy were being starved of the capital necessary to finance their growth and expansion.

And with entrepreneurial dreams being ‘killed at birth’, the Sunshine Holdings chief warned that Bahamian “self-reliance” - a key attribute of “nation building” - was being undermined, leaving this nation ever-more dependent on foreign direct investment (FDI).

He compared two hypothetical loan applications, one seeking a consumer loan secured by a salary deduction at 18 per cent interest, and the other for a new business with collateral provided by the entrepreneur’s parents, at 7 per cent.

Mr Wilson said “more and more bankers” would extend credit to the consumer borrower over the entrepreneur, because the former was perceived as a higher-yielding lower risk. More and more bankers are giving the money to Customer A.

“Each such decision continues a spiral,” Mr Wilson said. “Dreams of young would-be entrepreneurs, who are convinced that they can help build the country, are being shattered.

“Additionally, it helps to retard the notion that self-help and self-reliance are important to the concept of nation building – leaving us increasingly dependent on foreign investors.

“And that has further impact, because more and more it has become clear to the foreign investors that we are dependent on them – leaving them positioned to demand more and more in the way of policies which would otherwise be seen to be contrary to the interest of the Bahamas.”

Tribune Business revealed on Tuesday how Mr Wilson had warned that the near-500 per cent “explosion” in consumer credit over the past two decades was fuelling “irrational behaviour” by borrowers.

He added that the desire for instant satisfaction had left many Bahamians in a situation where their monthly income is dwarfed by outgoings, a problem that was exacerbated by the refusal of many to adjust lifestyles and spending when faced with adverse events such as loss of a job.

Suggesting that personal and financial self-discipline had broken down, Mr Wilson described the proliferation of web shop gaming throughout the Bahamas as “a major, major challenge”.

“There was, and I suspect remains, considerable evidence that increased gambling means increased poverty. Gambling breeds poverty,” he argued.

“Another serious consequence of this explosion in consumer borrowing is that it is diverting funds away from any activity which could possibly offer the prospect of building the country in a sustainable way. This has enormous long-run implications for the country.”

Apart from credit-starved entrepreneurs, Mr Wilson said the record number of mortgage delinquencies provided further evidence that Bahamian priorities were askew - as many preferred to pay auto loans and cell phone bills than keep their home current with the bank.

“Mortgage lenders assumed that the value system of the borrower was such that the borrower would see the payment of the mortgage as a very high priority,” he added.

“Consumer lending has changed this. By getting the salary deduction, the consumer lender has stepped in the front of the mortgage lender (and indeed the church), leaving it to the borrower to decide how to make do with that portion of the salary which is left after the salary deduction.

“No less a person than the chairman of a substantial consumer bank has said that many consumer borrowers have decided to pay their cable and cell phone bills before paying their mortgage.

“The premise is that it would take time for the bank to get them out of the house, but the cable or cell phone could be cut off immediately.”

Mr Wilson said the consumer lending binge had also resulted in a “cascading impact” on the family and friends of those who have over-borrowed, especially if someone else has helped to ‘guarantee’ the loan.

This exposes them to the lender’s demands for re-payment, resulting in family and other relationships being “ruined”.

“There is evidence that more and more families are experiencing new levels of instability,” Mr Wilson said. “This is not just from divorce, and physical separation.

“Some is from the reality of where persons stay together physically, out of the imperative that there is nowhere else to go. But, even as they remain under one roof, they simply refuse to co-operate one with the other. Quite often, this is what can be called ‘cutting off one’s nose to spite one’s face’.

“Because, sooner or later this lack of co-operation translates into financial hardship. For example, it is now normal to see pages and pages of houses being advertised by various banks,” he added.

“Not all of the circumstances are because either or both persons are not working. Sometimes both persons are working and the foreclosure is the simple consequence of ‘he (or she) stopped stop paying their part of the mortgage; so I stopped’.”

Government employees, too, often found themselves “in a real difficult spot” if their salaries were used for repeated loan servicing deductions, only for the relationship to end, thus lumbering them with all the repayment obligations.