$20 million? To seed the DFC? In the fast and freewheeling days of growth economics they’d say, “you must be joking!” After all, that DFC gave the Novelo’s a thirty million dollars loan in an afternoon; two checks 16 million and 14 million, just like that. For those who raided the development bank and ran it like a personal treasure chest, it was a good run, but when the DFC was reduced to rubble, it’s taxpayers who had to pick up and are still picking up the tab for the toxic debts.

And that’s why the mere mention of DFC still evokes bitterness in many. But the Barrow Administration is hoping to change that by making a reformed DFC one of the flagship accomplishments of its term of office. Proponents say the new DFC will be impervious to corruption, immune from political interference, and devoid of fraud. Of course, starting with just 20 million, there’s not much to mess up. Today I found out if this model institution will still have the flexibility to spur the sluggish economy.

Jacqueline Godwin Reporting,
In celebrating the way forward for the new Development Finance Corporation, it is uncertain whether the lending institution will be able to regain the credibility it once held.

Hon. Dean Barrow, Prime Minister
“I understand that the DFC has been around since 1960s and while it has had its ups and downs, by and large the DFC had a proud history. In fact there were times when the DFC in Belize was held up as the model DFC in the region.”

That proud status was lost between 1999 and 2004 when the DFC became a bank for wealthy, well connected political players who got government guaranteed financing at low interest rates. Five years after it was declared insolvent, the new DFC today commenced its loan programme.

Franklyn Magloire, Asst. General Manager – Operations
“We are targeting the poorest of the poor, those persons who for one or reason or another either has a project that the commercial bank or other financial institutions may not want to finance, those persons like the poor persons from down south who cannot go into the bank and access a loan, that is the target clientele.”

The targeted clientele will be able to apply for either of three programmes for student, mortgage or commercial loans.

Franklyn Magloire,
“For students loans one could get up to $60,000 for a three year or more than three year program of study, that is the maximum loan under the student loan program. With regards to housing it ties in with the capacity to repay the loan. What we try to do is ensure as much as possible that you do not pay more than one third of your monthly income to long term debt servicing. You see what’s happening in the States right now, more than 50% can’t cut it. So your maximum loan will be tied into your annual income. We can go as high as 180% of one’s annual income.”

According to DFC’s Assistant General Manager of Operations Franklyn Magloire, why the new DFC which is mostly private sector controlled will be a more secure and sustainable lending institution.

Franklyn Magloire,
“Any loan foreign loan that the DFC is going to engage in, like from CDB, must be passed by the National Assembly. It has to go through the National Assembly and debated by the entire National Assembly. Any loan in excess of $5 million, local, must again go to the National Assembly for approval so that everybody knows about it. Any loan that we give and we restructure, because a lot of restructuring happened in the past, if we restructure any loan above $100,000 it must be disclosed in our annual report. So you just can’t change terms and conditions of loans. There are other things like for example any disbursement that an officer of the DFC has to do that exceeds $100,000 must have the joint signatures of the Chairperson and the General Manager.”

Equally encouraging is the assurance from the Prime Minister and Minister of Finance Dean Barrow that there will be no political interference.

Hon. Dean Barrow,
“Apart from trying to ensure that Ministers and our political constituencies understand the fact that there cannot be any political interference in terms of the running of the DFC, we’ve also crafted a new regulatory regime, a new operational regime with regulatory safeguards that will try to ensure that on the ground management, staff, and the members of the Board of Directors stick to the mandate of operational transparency that is now the overarching objective of these new DFC arrangements.”

But while it will be the poorer class of society which stand to benefit the most from the new DFC loan programmes we asked the PM and Minister of Finance if there are any future plans to assist the middle class, the families who are now struggling to stay out of poverty due to high interest rates.

Hon. Dean Barrow,
“Your point is well taken, there is a need for some effort to be made to do something about high interest rates in this country. But certainly, it is clear that our situation is anomalous where all over the world we see interest rates down to 2% or 1% and here in this country you make a loan and you’re still talking about 14% to 18%. The way to attack it initially is to try to have a kind of consensus agreement after discussions with the stakeholders that would see a lowering of the interest rates.

I need to caution that we will have to be careful, it is complex because you want to be sure that when rates are lowered, there is great scrutiny and perhaps control over the kinds of lending that will be done to take advantage of the new interest rates because if you have lower interest rates and there are all these new loans but they are loans for consumption, what that will do is to run down your foreign reserves. We are so import dependent that we will need to be very careful. If you would have a chat with the Governor of the Central Bank, I said yesterday that I have spoke to him, there is a move afoot to put together the commercial banks and the private sector to talk particularly about interest rates.”

Franklyn Magloire,
“I think a lot of people because of varying conditions at the commercial banks, people go there and you get a loan under a promotional campaign and then you get it for 12% and two years later the interest rate goes up and people say they can’t sustain the payments anymore. It’s a pity that we can’t entertain those clients. You must be, you must seem to be then non-bankable.”

And while today some students took advantage of an open day to get information on how to apply for their loan, the mortgage and commercial loans will not be available until mid August and October respectively. The new DFC will be able to refinance but as explained by Magloire, only as part of a larger development project.

Franklyn Magloire,
“For example if a farmer has a project in citrus for example and he wants to expand or improve operations and the bank at that point in time says to him we are not prepared to risk more with you and then DFC, as long as the project, the refinancing part of it will not exceed 50% of the project then we can look at it. That is the only condition that we can refinance.”

The new DFC will be able to finance the loans with an initial twenty million dollar loan to the government of Belize by the Caribbean Development Bank.

The $20 million to seed the DFC is a soft loan from the Caribbean Development Bank.