No access to financing’: A strong FS sector will open various routes

Invest TCI is facilitating the development of the Financial services sector to build a diversified economy and ensure employment opportunities for the next generation. It is crucial Turks and Caicos Islanders understand and embrace this emerging landscape and begin to take steps to ensure their inclusion. The first step is access to information and having a better understanding of the sector. Invest TCI will be publishing a series of ten articles on the potential for financial services in the TCI. As we embark on this ambitious program to develop the Financial Services industry and in turn the country, Turks & Caicos Islanders need to be able to access these opportunities.

As we embark on the growth of our financial services sector, the topic that is prioritized by TC Islanders when discussing financial services is the ability to access or obtain adequate finance to execute their commercial goals. A general, honest observation which persons who own and operate businesses on island, at some point would’ve encountered and therefore have an opinion on. The purpose of today’s article is to present an understanding of how competition fuels a successful sector and examine what are the types of financing TCI can benefit from as a result of this increased competition. With a robust FS sector, TCI has a gateway to utilize modern sources of funding beyond the traditional institutions of banking to cater to TC Island businesses and its young, pioneering entrepreneurs.

As we gradually see major western banks become less interested in the Caribbean region, or retreating completely, we must learn of alternative options in which we as a young nation, still early in our country’s lifecycle, can obtain financing facilities to propel our economy and its businesses going forward. The growth of our FS sector will see HNWI, institutions and family offices select TCI to conduct its financial business. These individuals and institutions can provide a variety of modern and attractive private credit and SME lending to TCI and its populace that currently exist in more developed countries encouraging an economic environment of diversified sectors, quality and disruptive innovation.

Why is competition important?

Competition addresses three key factors as it pertains to financing: creativity, cost and stability. Through increasing competition, the creativity displayed by institutions will intensify, the cost associated with its services will improve and the stability that exists amongst the institutions and the sector will be strengthened. In order to remain competitive and relevant, institutions will offer more unique products or terms for borrowers to choose from. Practices such as predatory lending with exorbitant interest rates can be replaced with a wider, sophisticated and responsible method of lending, where repayment or agreement terms are tailored to the nature of the borrower’s business. From a cost standpoint, lenders will offer favourable rates to retain their consumer base or provide additional services free of charge. An example of this is financial institutions offering advisory services for new businesses or start-ups that borrow from them. Stability is reinforced because if there are a lot of institutions offering great service, it is unlikely persons will only bank or seek finance with one institution. Therefore, there will be less of an impact on the economy should an institution decide to leave, go into receivership or if a lender is demonstrating unethical lending practices.

Banks aren’t the only option

There is an old saying “A bank is a place that will lend you money if you can prove that you don’t need it.” Whether this is a truthful statement or not, it resonates heavily and unfortunately for most TC Islanders, often leaves them at a competitive disadvantage. So, what are other financing instruments available that could potentially be offered to the public as a result of having a solid FS sector?

• Angel Investors– Angel investors are private investors who typically invest capital and their business expertise/skills in early-stage businesses in exchange for a stake in the business. They are typically HNWI’s individuals or part of an angel network that engages in investing in businesses with high growth potential, in industries they are familiar with. They tend to invest in businesses that offer exceptional opportunities for returns on investment, particularly in a developing market (such as TCI).
• Venture Capitalists- Venture capitalists are a form of private equity financing in which professional investors act on behalf of their clients, who not only offer funding but also advice on increasing business profitability, along with operational matters. Venture capitalists are typically involved in their investments between 2 to 5 years and seek a higher rate of return from the companies they invest in as they will have to account for a higher level of profits to their clients.
• P2P lenders- P2P lending connects borrowers directly to investors through an online platform. It is becoming a fresh, modern option for those seeking a better rate than a traditional bank as platforms have been able to scale up their lending, attract new institutional funding, and distribute funds to struggling businesses quickly and effectively. P2P lending platforms have the technology and track record to process huge volumes of loan requests without compromising on quality. The loan applicant posts a financial profile that is assigned a risk category that determines the interest rate the applicant will pay. Once the applicant reviews its offers and accepts, the funds are transferred, with monthly payments handled directly through the platform. Popular examples are Funding Circle, Assetz Capital and LendingCrowd.

All viable options that can serve the TCI and its business owners. This not only adds efficiency, expertise and insight to the market but a fair playing field for TC islanders to obtain adequate, commercial financing.

Room for progress?

Ultimately, it is having a marketable financial services sector that will enable us the leverage to attract these forms of financing and the individuals to fund it. More importantly, it is these improvements that can lead to the introduction of universal financial tools that can greatly assist TC Islanders in obtaining finance. An example of such a tool is a Credit Bureau or a Credit Rating agency. As a maturing nation, this will become an inevitable requirement in years to come as it relates to individuals being equally eligible to obtain credit. In conjunction with the FSC, financial institutions can contribute to building this credit database, establishing a common system in which the credit score of TCI residents can be accurately retrieved. The main benefit of a credit rating system is that it provides a financial history of an applicant and therefore assesses its credibility or risk to the lending institution. Additionally, a credit rating agency enables a defined approach to an applicant’s credit viability, basing it on the merit of one’s credit score as opposed to other factors.

Conclusion

As Invest TCI and the FSWG work to promote and develop TCI as an international financial centre, the opportunity to benefit from alternative funding options for young TC islanders and their business or start-up is a goal that can be realized off the back of a strong and reputable FS sector. The aim of presenting modern and competitive financing options, is to cultivate a sustainable economy that encourages innovation and forward thinking, along with supporting the advancement of young TC entrepreneurs. A strong financial services sector will enable the ability to achieve this, ensuring economic longevity for the next generation of TC Islanders.

Benjamin Durham

Invest TCI Business Analyst

Benjamin is a Turks & Caicos Islander who has recently returned home after studying and working in London for the past 11 years. He holds an undergraduate degree in Economics and an LLM in financial law. He is currently employed by Invest TCI as its Business Analyst, and to also assist in promoting and marketing the TCI financial services industry.