Bank’s law is barrier to small business loans
(CNS): The law governing the Cayman Islands Development Bank appears to be a barrier to small businesses accessing low-cost government-guaranteed loans to help them weather the COVID-19 economic challenges. Some CI$5 million has been set aside to fund a low-interest loan programme through the government-owned bank but uptake has been very low. So far, only 48 businesses have applied for the loans.
Part of a relief package announced by Commerce Minister Joey Hew in April, the low cost loans, with an interest rate of around 1%, have attracted only a fraction of small businesses, whereas over 500 have applied for the government grants offered as part of the same package.
The Development Bank, which is entirely owned by the government, was established to offer loans to local micro and small businesses. The current programme will enable local business owners to access up to $50,000 in loans, rated at 1% over five years, with no payments for the first six months.
But only businesses that are 100% Cayman-owned may apply because of the CIDB law, which prevents Caymanian owners with a foreign partner from applying.
Speaking at the COVID-19 briefing on Friday, Premier Alden McLaughlin admitted that this legislation was a major stumbling block for local businesses to access this programme, and more than 60% of the allocated funds are still available.
McLaughlin said the loan application was the most “problematic part of the whole exercise”, as he referred to the full package of support being given to the small business community. “We are not in direct control of the process,” he said.
The premier explained that the bank operated under its own management and board of directors. While government created the loan programme and provided the money, the CIDB law states that any loans the bank gives to local businesses must be 100% Caymanian-owned.
“That eliminates a significant number of entities that would be operating here that might be Caymanain controlled but still have some degree of foreign ownership,” the premier said, explaining one of the factors that appears to be stifling applications.
“We are having discussions about this because this is quite worrying… This is one truly under-performing bit of the package that government is trying to roll out,” McLaughlin added, as he stressed the need to address the issue.
The premier did not say if government was prepared to change the law to enable local business owners with foreign partners to access the cash.
Government set aside over CI$14 million in the first part of its stimulus package that was designed to prop up the small business community. The package is being administered by the Cayman Islands Small Business Development Centre within the commerce ministry.
As well as the $5 million low cost loan programme, it includes $9 million in grants for tourism businesses that can reinvent themselves to operate in the domestic economy.
A support network has also been established to offer technical assistance and training progammes. So far almost 600 businesses have applied for some form of support from the centre and government has settled around 77% of the applications.
Government has paid out just three quarters of a million dollars so far in grants. Some 300 people have taken part in the training and support services on offer.
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Category: Business, Economy, Politics, Small Business
So, let’s say you are a 100% Caymanian owned business but most of your employees are expats – you can qualify for a loan. If you are a business with some foreign ownership and all Caymanian employees you are automatically excluded?
Isn’t the goal here to help Caymanians?
They need to take this on a case by case basis.
So a 100% Caymanian owned business, leveraged to the hilt, can get soft loans to protect the economic interests of their lenders – let’s say Canadian banks operating here – but a local business that has 19 % foreign shareholding cannot? Irrespective of whether it’s the creditors or the shareholders that will benefit. Or how many Caymanian employees are at risk? Or how much that business contributes in terms of indirect taxes?
Sounds like the kind of masterful intervention policy we would expect. FFS why not help out any business that can demonstrate that it employs Caymanians – how is that any more supportive of the economy than Aldens admitted strategy of continuing to pay civil servants who are not working because it injects money back into the economy?
How in 3 months $8.9 million could be spent on:
Additional funding to the Health Services Authority for masks, gowns and other protective equipment and to cover cost of supplies, staff and new equipment, and the expense of episodic testing programmes.???
I mean how much and what exactly was purchased?
The online application has numerous glitches :
The application/document can’t be saved as a working document to your computer
The application can’t be sent directly when filled out
0 Support
Numerous phone calls and emails with no reply
Trying asking for loan deferral and no one gotten back since it’s been announced. It’s truly the most frustrating place to do business with. Very unhelpful!!!!
I had this happen to me, it was so frustrating, lost the whole completed document. I went back and downloaded the PDF, saved it, then refilled it out, printed it, scanned it, and saved the scan in a document file.
I found the staff to be extremely helpful, I emailed and they got right back to me. Granted, I never tried calling, but emails are so much easier, and I thought they might be working from home. Sorry you had a bad experience.
Now the flood gates are gonna open up. They better keep it for Caymanians only as we should not be assisting private or foreign owned businesses. By the time the poor Cayman business gets his loan, they will have more competing foreign companies undercutting them, than you can shake a stick at.
I can never understand why they always insisting on ‘Caymanian only’. All businesses contribute to government coffers so why the segregation. I will say again thread carefully because things can be taken away very quickly.
Just like any other bank loan, only those who don’t need it (125% collateral?) can access the loans. If a business had that kind of financial cushion, the loan would not be needed! Most small businesses today operate on a shoestring, and can’t afford to lose a day or a weeks’ business without going belly-up!
SMDH!
Agreed
Asking for a 125% collateral to stay afloat in the wake of a world wide epidemic where government forced all shops to close down and shut all borders is not really helping their own people. It’s quite the opposite. Big fish impatiently waiting for the inevitable feeding frenzy
True
I find these comments about “fronting” hurtful. Don’t understand what are you talking about honestly. I tough “we are all in these together”. Same storm. You think is OK to let certain business bankrupt in middle of this crisis, just because part owner is from somewhere else? Do not forget all these “mixed” businesses have Caymanians on board.
Fronting is a serious crime and constitutes money laundering. Any offense you feel is ill-placed.
Why are we talking about “fronting” in this situation? Somebody should check (and prove) before accusing of illegal activity. I take offence that every business with foreign business partner is automatically considered criminal. There are Caymanians partnering with their foreign spouse, there are Caymaninas who let their WP employee invest in business, there are Caymaninas who partnered with a WP holder because they are experts in their field and want to invest their savings in Cayman. Maybe there are some money laundering businesses but why should we generalize and assume all are?
If the Caymanian receives less than 60% of the profits, they are fronting, and the business is automatically engaging in money laundering, no matter what it does.
Simply pure BS. you would have to demonstrate that the Caymanian shareholder was receiving less than then their equivalent shareholder proportion – where do you get 60% from? What if the Caymanian holds 20% of the shares? Still banned from receiving CDB assistance.
And for it to constitute money laundering you need to demonstrate not only that the recovery by the foreigner is disproportionate to their equity share but also that there was some attempt to conceal the source of the money. A Russian oligarch, an African dictator or a drug cartel can have a slice of a Cayman company and it only becomes laundering if you can demonstrate that the source of the money is tainted AND that the ownership is concealed.
Just because you don’t like the idea that foreigners may own substantial parts of Cayman businesses does not make it inherently illegal. Or get around the fact that simply because a business has foreign shareholders doesn’t mean a ) that they are going to be bailed out by the shareholders b) won’t collapse with the loss of local jobs and economic multiplier effects if not supported.
Ummm, if the Caymanian owns any less than 60%, and the business is competing locally, there had better be an LCCL license.
I have no objection with foreign nationals owning parts of local businesses. I have substantial objection to them lying to authorities as to the true ownership and control structure of their businesses, and the enforcement mechanisms taking no action despite many easily determined breaches.
I’m not sure you understand what “money laundering” is….
Legally defined as the handling of the proceeds of crime. Under our all offenses regime, any monies earned by a business operating outside the law are the proceeds of crime.
One partner 60% Caymanian and the other 40% permanent resident will they qualify?
No
All while Bush’ assault case is being pushed back for 2nd time. Who is behind it? Who behind the scenes continues buttering his bread?
CIDB, is one very difficult institution to deal with even if there was no covid. Starting with the person at head must be changed and the one below her. The business is Very old fashioned, not forward’ thinking and unwilling to help anyone on a good day. I’m not surprised of the red tape people face here. Government should have used Credit Union instead to assist in this program as they know what they’re doing there.
Makes you wonder…. they can change the law pretty quickly to stop me going to the beach on a Sunday but they can’t change the law for companies to access funding if they’re even 1% foreign owned
Maybe the problem is that government requires collateral valued more than the loan they are providing
Leave the Law the way it is!
It was put there to ensure that “fronting” would not benefit directly from Government coffers.
What a load of horse wash. I tried to get a loan to save my small business. I need 125% of the loan as collateral. So why would I need a loan if I had 125%? What a failure. The only thing I didn’t give to apply for this loan was blood.
Imagine government giving away free money and almost interest free loans and the take up is terrible. Why do you think that is Joey? What a total disaster!!!
By the way, the word is ‘HOG’ wash, not ‘Horse” wash. geesh
Does CIDB law states that in case of a global catastrophe (when government bans business operation) only certain businesses will be offered relief? We pay same taxes, follow same laws and hiring process, pay same dues.
Metaphorically, this situation I compare like seeing people drowning in a storm, but a life boats checks passports and picks up 40% of the people drowning. Let the rest drown because they do not comply and sails away with a life boat half empty.
Exactly
Alden, there is hardly a single Caymanian controlled business left. Why has there not been a single prosecution for fronting since you were first elected? It is rampant! What did you expect would happen?
Yes, should prosecute all fronting businesses. Will then the honest foreign business partners will be seen as that? Honest, hard working people, who decided to invest their life savings in Cayman
Yes. There are many honest foreign investors, and they are welcomed.
But not when it comes to helping them through a crisis. Because they are foreign. And their foreigners has contaminated their Caymanian partners. CUFMG bailouts are only for the pure – irrespective of how many Caymanians they may employ.
Maybe this will assist is reducing/stopping some of the fronting practices that have been occurring for a long time.
Mainstream money laundering. It is so open without any action by the legal authorities, it is as if the government is complicit.
It is. The lack of enforcement is intentional, and we wonder why international regulators do not trust us.