Understanding Climate Change (Part XIV)
Guyana’s LCDS – Small and Micro-enterprise Development

IN PREVIOUS articles we introduced Guyana’s Low-Carbon Development Strategy (LCDS), the third draft of which was released and launched by His Excellency President Bharrat Jagdeo on May 24, 2010.

The revised draft of the LCDS places greater emphasis on implementation and outlines seven key priority areas for investment of forest payments over the next two years. This week we will discuss one of these – Small and Micro Enterprise Development in Low Carbon Sectors and Building Alternative Livelihoods for Vulnerable Groups.
Small and micro enterprises
Although there is no universal definition of small and micro enterprises (SMEs), there is agreement on several common characteristic features. SMEs are generally more labour than capital intensive and have high relative costs of production (because raw materials are purchased in small quantities). They are also characterized by low levels of qualification and formal education, and lack technical experience in production, accounting, administration and stock control. They are often family-based businesses and may not be formally registered.
It has long been recognised that SMEs also make an important contribution to long term growth, employment and sustainable development. Their development can deepen the manufacturing sector and foster competitiveness. They can also help achieve a more equitable distribution of the benefits of economic growth and thereby help alleviate some of the problems associated with uneven income distribution.
Many SMEs are created without any institutional help, by an entrepreneur who obtains a small amount of finance to start a business from his own savings or from his family. In order to grow and expand the business, the entrepreneur would usually require some additional capital in the form of a loan from a bank or other lending institution. However, SMEs often experience difficulty in obtaining such financing due to their small size and lack of collateral. Banks tend to be unwilling to lend to SMEs, which they perceive as having a higher risk of default than larger businesses.  Lack of access to credit is a major constraint to SME development in many developing countries.
SMEs also face a number of other constraints, including limited skills, lack of access to technology, which limits innovation and competitiveness.  Another key constraint is limited availability and high cost of inputs to production, since due to their small size, SMEs cannot benefit from economies of scale. SMEs also face constraints in accessing domestic and international product markets. In addition, they may face regulatory constraints, including high start up costs and restrictive taxation and tariffs.
SME’s and vulnerable groups
The definition of vulnerable groups varies among countries, but vulnerability may be defined by several characteristics including age, sex, gender, ethnicity, socio-economic characteristics or disability. According to the FAO, vulnerable groups include those “whose resource endowment is inadequate to provide sufficient income from any available source”. Vulnerable groups are often marginalised and lack opportunities for economic development and social upliftment for various reasons, including lack of education and skills, social perceptions and stigmas, and poverty.
Providing opportunities to SMEs and vulnerable groups
Supporting the development of SMEs and alternative livelihoods for vulnerable groups is important for alleviating poverty, promoting development, and providing a means of self-sufficiency and source of income to some of the most marginalized members of society. In rural areas especially, SMEs provide a means for some of the most marginalized and vulnerable strata such as rural women, youth, and the landless – to diversify their incomes, create new sources of economic growth and generate additional employment (including self-employment).

In order to promote the development of SMEs and vulnerable groups, several institutional and regulatory barriers need to be reduced and policy measures put in place to facilitate their development. Measures that enhance access to credit, lower transaction costs of obtaining financing, reduce bureaucratic procedures and expand the availability of market-related information will  enhance the feasibility of SMEs.  Targeted programmes aimed at transferring skills and building capacity of SMEs and vulnerable groups can also play an important role in their development. This may often require active efforts by the government, and coordination and cooperation between government, private sector, lending institutions and NGOs.

Development of SMEs and vulnerable groups in Guyana
The major constraints to SME development and the ability of vulnerable groups to build alternative livelihoods in Guyana are access to finance and limited skills. Banks and lending associations are keenly aware of the risk associated with lending credit to this sector.
One of the main priorities for implementation over the next two years under the revised LCDS is investment in promoting the development of SMEs and alternative livelihoods for vulnerable groups. The project will focus on addressing the main constraints by providing opportunities for SMEs and vulnerable groups to gain access to funding and micro credit, in the form of grants, and through a mutual guarantee fund.  Emphasis wll also be placed on promoting skills development and capacity building in agencies responsible for SME development and vulnerable groups.

Funding for SMEs and vulnerable groups
Guyana’s Small Business Act of 2004 established a Small Business Development Fund and a Small Business Council.  The council is the prime agency responsible for the development of the SME sector in Guyana. The secretariat of this council is the Small Business Bureau, which has been allocated funding in the 2010 government budget and is now fully operationalised. The bureau will work closely with agencies responsible for building alternative livelihoods for vulnerable groups, such as the Women’s Advisory Bureau, the Rural Women’s Network and the Ministry of Agriculture.

LCDS funds that are put aside for SME and vulnerable groups’ development will be administered through the Small Business Development Fund and will be applied towards two major SME constraints, viz access to finance and technical and business skills development.
The available financing will:

• Provide grants for essential equipment and marketing activities to small and micro businesses in key low carbon growth sectors and restructuring sectors: for example, fruit and vegetables, aquaculture, sustainable value-added forestry, eco-tourism, and sustainable-model mining

• Address Guyana’s long standing access to finance constraint for SMEs and vulnerable groups by launching a Low Carbon SME Mutual Guarantee Fund. By assuming an adequate but not excessive amount of lending risk, this fund will address a long-term constraint to the development of SMEs and vulnerable groups in Guyana. The fund will aid the development of SMEs and vulnerable groups in other low carbon sectors, such as energy efficient transportation, printing and publishing, arts and crafts, apiculture, internet and computer based services, low carbon manufacturing, entertainment, music and arts and retail and distribution

• Provide targeted training in business development, technical skills and sustainability through a targeted system which will give SMEs and vulnerable groups the ability to obtain the relevant business and technical training conducive to their development. The system will ensure appropriate training by allowing low carbon sector SMEs and vulnerable groups to choose the training they require, within a pre-select ban
d, from organizations such as the Small Business Development Finance Trust, Empretec and the Institute for Private Enterprise Development. Training support will also be given to the Guyana National Bureau of Standards so that it can reach out to viable potential SME exporters to ensure that their business practices and products meet the requirements of their target export market; and

• Capacity building in agencies responsible for SME development and building alternative livelihoods for vulnerable groups in low carbon sectors, including the Small Business Bureau. This will be in the management of the mutual guarantee funds, grants, the targeted training system and SME and vulnerable group information systems.

Promoting the development of SMEs and building alternative livelihoods for vulnerable groups in Guyana is important for social as well as economic reasons.  It will provide opportunities for marginalized groups in Guyana to diversify and enhance their income, and provide opportunities for broader economic growth and development. .
Next week we will continue to explore more key aspects of Guyana’s LCDS.

*Information used in this feature was extracted from the following reports and sources: Guyana’s Low Carbon Development Strategy (May 2010); Labie, M. 1995. Credits to Small Businesses and Microenterprises; UN Food and Agriculture Organisation (FAO); International Fund for Agricultural Development (IFAD) Learning Notes. Micro and Small Enterprise (MSE) development, Inter-American Development Bank : ENTERPRISE DEVELOPMENT STRATEGY Small- and Medium-Sized enterprises; United Nations Conference on Trade and Development (UNCTAD) GROWING MICRO AND SMALL ENTERPRISES IN LDCs The “missing middle” in LDCs: why micro and  small enterprises are not growing; World Health Organisation; Guyana Small Businesses Act, 2004.

Prepared by the Office of Climate Change, June, 2010
For additional information, please contact:
Office of Climate Change, Office of the President
Shiv Chanderpaul Drive, Georgetown
Tel. 223-5205
Email: info@lcds.gov.gy , Web Site: www.lcds.gov.gy