Belize is brimming with dynamic and driven entrepreneurs. According to the Global Entrepreneurship Monitor (GEM, 2016), 18% of individuals are engaging in starting a business, higher than the 12% average in Latin America and the Caribbean.

Impressively, 10% of these businesses stay afloat for at least a year, surpassing the regional average of 7%. 

However, many struggle to survive beyond this initial success: One out of five surveyed firms in the GEM discontinued operations in the prior year, nearly double the regional average (one out of 10 businesses).

One Caribbean: A regional program to address central challenges with a regional focus 

This high exit rate has significant implications for Belize's growth, as MSMEs are the backbone of the economy. 

They account for about 90% of economic activity and employ half of the labor force. Despite their importance, only a third of these businesses are opportunity-driven. The remainder operate out of necessity.

A Financing Conundrum

Why do so many Belizean firms discontinue operations after such a short time? Access to finance seems to be the deal breaker.

One-third of business owners attribute their exit to financial problems. A recent survey from the Inter-American Development Bank conducted in 2019 and 2020 reports that access to finance is the second biggest obstacle for businesses, following the availability of human capital. 

And this financial constraint disproportionately affects women entrepreneurs (see infographic below).

A new IDB study dives deeper into the ecosystem of financial access affecting Belizean MSMEs. 

Through a combination of desk research, interviews with government agencies and financial institutions, focus groups with MSMEs and credit unions, and surveys with stakeholders, we identified critical factors influencing the demand and supply of credit. 

Here are a few of them.

Credit Demand

• MSMEs were hit hard by the COVID-19 pandemic, experiencing drastic revenue drops, prolonged closures, and necessary business pivots. 

   

• Financial literacy among MSMEs still needs to improve, even among seasoned entrepreneurs. 

   

• Loan terms and application processes pose significant hurdles. For smaller companies, the administrative costs of securing a loan are often prohibitive. Financial institutions are perceived as overly risk-averse and need more knowledge of MSME needs.

Credit Supply

• Financial institutions argue that MSMEs often lack basic business knowledge, proper financial records, coherent business plans, and an understanding of different business structures. 

   

• Banks prefer traditional forms of collateral and are reluctant to accept alternatives that are more usual within MSMEs, such as movable property or suppliers' invoices.

   

• MSMEs are viewed as needing extensive "handholding," which financial institutions can only provide to a limited extent. This perception impacts the cost of finance. 

   

• The lack of a standardized data classification system for MSMEs hinders the development of tailored financial products. 

Our Four Ideas

• Adopting a national MSME definition should be a priority. The definition of MSMEs has changed over the last few years, and institutions have not adopted the current one. Widespread adoption of a standardized definition, with proper disaggregation by gender, will facilitate data generation and information sharing. This will also allow the design of tailored products for different subsegments and strategic sectors, such as new agricultural and niche markets, incorporating a gender lens.

   

• Increase public-private sector collaboration to overcome barriers to access to finance. This is paramount to mitigate information gaps that limit credit demand and availability. Initiatives like the MSME Roadshow provide an effective platform to bring together key actors from the public and private sectors. These events share crucial information on formalization processes and financial incentives and offer training in topics that can be a game-changer for financial institutions.

   

• Enhancing financial inclusion through credit bureau and collateral registry reforms. These regulatory instruments could significantly reduce information asymmetries and risk perception regarding MSMEs. Efforts to implement them should be fast-tracked.

• Advancing financial literacy and capacity building for MSMEs. Financial literacy should be promoted at all levels of education, tailored to the literacy needs of different population groups, stages of development, and knowledge gaps.

   

An Active Partner

The IDB Group is committed to advancing Belize's growth and development through robust private-sector support. 

As an active partner, the Bank aims to foster a favorable business climate for MSMEs through financial products and technical assistance from the IDB, IDB Invest, and IDB Lab. 

You May Also Like

• IDB Invest Promotes Access to Financing for MSMEs in Belize
• Belize Further Paves the Way to Malaria Elimination in Mesoamerica with IDB Support

We actively support the digital transformation of MSMEs and empower them to become exporters through trade and investment facilitation single windows. 

Through IDB Invest financing to important domestic banking sector actors, we contribute to increasing the portfolio serving this important firm segment.

The IDB also works closely with the Development Finance Corporation (DFC) to provide productive finance for MSMEs and enhance DFC's capacity to serve women entrepreneurs. 

Seizing the transformative power of access to finance will create an environment where MSMEs can thrive, unlocking Belize's full entrepreneurial potential and driving sustainable economic growth.