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GOB Moves to Approve Legislature to Allow the DFC to Borrow from Domestic and International Facilities

The Government of Belize is seeking approval from the legislature to allow the Development Finance Corporation (DFC) to be allowed to borrow from domestic and international facilities like the Inter-American Development Bank (IADB). The basis of the approval is to accommodate DFC in its economic recovery strategy to assist micro, small and medium enterprises in accessing finance for business investments. The motion comes almost three months after the IADB had approved a fifteen million US dollar loan to the DFC. Senator for Government Business, Eamon Courtenay presented the motion this morning in the Senate.

Senator Eamon Courtenay:The execution of the program shall be carried out by the Development Finance Corporation acting as executing agency and whereas the bank has offered financing of up to $15 million US dollars to the Development Finance Corporation for the program under the following terms and conditions. The loan principal amount: US$15 million. Disbursement schedule: Over a period of two years from the effective date of the loan contract but may be extended subject to the consent of the Government of Belize and IDB. Loan term: Twenty five years inclusive of a sixty six month grace period. Repayment period: To be repaid in 15.25 years weighted average, loan life with loan repayment semiannually on the fifteenth day of the payment month. Purpose: To support the sustainability of MSMEs as employment providers in Belize amid the COVID-19 crisis and promote the economic recovery of MSMEs through access to production oriented finance. The rate of interest will be charged on the daily outstanding principal balance of the investment loan as per Libor based interest rate plus the applicable lending spread for the bank’s ordinary capital loans interest rate is not expected to exceed 2% per annum. Commitment fee: A commitment fee will be charged on the undisbursed balance of the investment loan at the percentage to be established by the bank on a periodic basis not exceeding .75% per annum and accrues commencing sixty days from the execution of the contract. And whereas a general condition of the bank’s lending program is that the principal interest, fees, and any other loan charge shall be paid without any deduction or restriction whatsoever exempt from any tax, fee, duty or charge established or that may be established by the borrower and whereas under the provisions of section 7,6 of the Finance and Audit Reform Act 2005 provides that before government offers any guarantee or some other form of security in support of a loan made directly to a private sector entity or a statutory body by any public or private bank, financial institution or capital market in or outside of Belize the government shall seek the approval of the National Assembly. Now therefore be it resolved that this honorable house being satisfied that the loan proceeds will significantly assist the DFC to improve its capacity to provide affordable financing, to support the short term financial sustainability of MSMEs and to promote the economic recovery of MSMEs through the access to production oriented financing: One, approves that the DFC may borrow the said sum of $15 million US dollars from the Inter American Development Bank on their terms and conditions set out above and further authorizes the board of directors of the DFC to execute and deliver the loan agreement and other associated documents. Two, approves that all principal interest fees, premiums and other charges under the loan shall be tax free, duty or charge exempt as provided for in the loan and the guarantee agreements and further approves and confirms that the government may enter into a guarantee agreement with the Inter American Development Bank on the terms and conditions set out above and further authorizes the Minister of Finance to execute and deliver the said guarantee agreement and all documents associated with therewith. Madam President I commend the motion to the Senate.”

Following Courtenay’s presentation there were concerns expressed from several sides of the Senate.

Senator Kevin Herrera, Representative for the BCCI and Belize Business Bureau: “The Development Finance Corporation and development banks in general are extremely important to the productive sector. In many cases commercial banks view the productive sector especially in this case the micro, small and medium sized enterprises as too risky to do business with. And so this type of facility that the DFC is getting and its ability to lend to this sector is extremely important.”

Carolyn Tench Sandiford, President of the Senate: “I recognize Senator Osmany Salas.”

Senator Osmany Salas, NGO Senator: “Thank you Madam President. This type of loan motion Madam President we are very pleased to support. Now this is geared at supporting MSMEs. MSMEs I think we can all agree are the lifeblood of our economy. The more MSMEs there are, there more they’re functioning well the more resilient our economy is. I think we’ve heard a lot that small business is really what in many ways gives us our saving grace. So I am very pleased to support this particular loan motion. That’s just an observation I have and a question under implementation considerations it says that through the program DFC will channel lines of credit to financial intermediaries who will then issue new working capital and investment sub loans to MSMEs and the participating IFIs include any incorporated commercial bank, finance company, trust, merchant bank, credit unions. I can understand credit unions but I have a tough time understanding why we would want to grant a sub loan to commercial banks And my colleague before me made some references to the limitations with such facilities being handled or managed on a commercial bank so I was just wondering why DFC couldn’t. There’s a statement here that says DFC will also allocate loan proceeds for working capital and investment needs directly to MSME’s so my question is why would DFC need to channel lines of credit to others with the exception of credit unions ? Credit unions can help us to reach more of the marginalized groups of people that would benefit a lot from MSME production and development. So that’s just an observation and a question that I ask in relation to this. I believe and I have had direct experience with DFC and indirect as well that they’re capable enough to manage this all on their own without having to grant lines of credit in particular to commercial banks so that’s just a question I have but we do support the loan motion. Thank you madam president.”

Senator Michael Peyrefitte: “So this initiative to say well you’re going to make available about $15 million dollars for the economy is a good idea. Make that money available to the economy through the DFC and my exact question and I think Senator Salas has hacked into my computer that’s my exact question and concern that I have. If you’re doing it as a DFC program and a DFC loan let the DFC do it. Because then unless there is some aspect of it that must pass through other financial institutions because then I would imagine and-  I don’t know maybe the Minister of State can correct me I’m no banker – but I would imagine that if you take and you utilize these different financial institutions does that make the cost of accessing that money more ? Does it affect it and wouldn’t we want for example funds that have been raised by the government and given to the DFC for development have the people go to the DFC. Have the people believe that it was their own Development Finance Corporation that helped with that situation rather than having to go to private financial institutions which have the history and understandably so to a certain extent of being more cold, of being more uncaring. If it goes through the DFC, the DFC will have appreciated that this is something to benefit people and so you have more of a social conscience, more of a heart so to speak.”

According to the House Papers, this loan facility to the DFC will focus on improving access to financial services to women entrepreneurs; investments in climate adaptation and mitigation within vulnerable areas as well as making MSME’s climate resilient to natural disasters. Love News understands that the Government of Belize will be providing a sovereign guarantee on the IADB loan to the DFC.