Microfinance Issues and Challenges in the Anglophone Caribbean

This paper describes the microenterprise and microfinance sectors of seven English-speaking Caribbean states, examines main constraints on the development of a well functioning microfinance market in these countries, and highlights the amount, type, and results obtained in microenterprise projects financed by the Inter-American Bank in the last fifteen years. It suggests that English-speaking Caribbean microfinance organizations have not attained as much success in client outreach and sustainability compared to Latin American counterparts due to different legacies. Higher levels of economic and financial stability coupled with high levels of socio-economic development and strong government presence in microfinance have not created the same impetus for the rapid development of a commercially oriented style of microfinance as witnessed in Latin America in the 1980-90s. Several other factors led to a heavier and more sustained reliance on subsidies in the Anglophone Caribbean: notably, NGOs there have had less time, and less sustained external technical assistance, to experiment with commercially sustainable microfinance. This reliance on subsidies has persisted among practitioners as well as policymakers. This differing context should be taken into account in the design of strategies promoting microfinance in the Caribbean. The paper examines the role of the Inter-American Development Bank in the sector, and draws conclusions based on the lessons learned from its Caribbean microenterprise projects of the past decade. The paper concludes with a number of potential strategic interventions: for example, educating public sector policymakers and microfinance organization (MFO) managers about appropriate interest rate policies; creating more favorable conditions for sustainable microfinance, namely by improving secured transactions frameworks and building credit bureaus; encouraging existing commercial banks and finance or trust companies to down-scale and penetrate microenterprise markets; strengthening existing institutions in order to achieve a “breakthrough model” of commercially sustainable microfinance; and, if certain conditions are met, promoting the creation of new institutions dedicated to microfinance. It concludes that the English-speaking Caribbean needs to take advantage of its relatively high level of economic and financial market development and develop new methodologies and products aimed at serving small and micro entrepreneurs.