CDB preps banks for lending to creatives
There is no doubt that enterprises in the creative industries possess enormous capacity to generate high levels of revenue. It is that dream of financial success and personal achievement that drive so many to pursue careers in culture and the arts.
However, a gulf exists between entrepreneurs who want to build their businesses on the arts, and those in financial institutions who have excess capital for lending, but just do not have a full grasp of how they should assess such enterprises for loan financing.
The Caribbean Development Bank’s (CDB) Micro Small and Medium-Sized Enterprises (MSME) Unit is seeking to close the knowledge gap by providing relevant training to equip frontline officers of Development Finance Institutions (DFIs) in the Bank’s 19 borrowing member countries (BMCs), to better appraise loan applications of creative sector projects.
Michel Thomas, Operations Officer with the Bank’s Caribbean Technological Consultancy Services (CTCS), is managing this important project, which has brought together loan and business development officers from DFIs, officials of government ministries involved in the registration of intellectual property, and consultants who provide services to the creative industries.
Still in the execution process, the project has already staged a workshop from which a guidelines manual has been created, finalised and shared with all the financial institutions willing to provide funding to cultural industries practitioners.
An interactive training programme for all lending institutions is also being created and is expected to be available on the CDB’s e-learning platform to provide much wider dissemination and information access.
Outlining the next step for the US$170, 0000 project, Thomas stated: “In the second phase, we are to work with the DFIs to provide support to appraise the actual proposals that they are receiving from clients. The intention is for the consultants to work directly with clients to develop their proposals which are then submitted to the DFIs.”
The CDB MSME development professional explained the goal is to create an environment that promotes and engenders requests for loans from creatives. In this connection, financial institutions will be asked to promote the facility, and on that basis, consultants will be engaged to work with those clients.
Thomas, who is excited about the project’s potential to ignite more activity in the sector, explained why this lending portfolio for financial institutions has remained so lacklustre.
“Based on the discussions that we have had with the sector, the challenge is the inability of the banks to understand the way cultural industry practitioners operate. Furthermore, most creatives do not have the necessary collateral; the most that they will have is their intellectual property.”
Thomas added: “A person who is into fashion design may have few assets. For the financial institution, it will not be sufficient to support their application.
“The key thing is for financial institutions to understand how those in the creative sectors operate. That’s why in our manual and discussions with them, we proposed that when reviewing applications, that a committee of loans officers from the institution along with a consultant who understands the various aspects of the business, and someone from the [Intellectual Property] office be brought in to consider the application in a more holistic manner and to make informed decisions.”
Describing the project as a work in progress, the CDB officer is pleased with the outcomes so far and the level of participation by development institutions.
Providing the training and an enabling environment for managers, loan officer and business development executives is critical, given the impact which the COVID-19 pandemic has had on the sector resulting in these operators becoming even more risk averse.
“In the meantime, we are trying to develop and strengthen the ecosystem and the capacity of the DFIs. Also, through enhanced training to a cadre of consultants to provide support to the entrepreneurs to help them develop their proposals for both loans, or grants from agencies, we at CDB are helping to create a more conducive environment. Of course, the ultimate goal of CDB is to have lines of credit to institutions to offer loans and have them repaid from the revenues that the creatives generate.”