Cayman’s thriving entrepreneurs are risk-taking, confident, driven and most of all, possess a high degree of social skills.
These are just some of the attributes that Tracy Ebanks, general manager of the Cayman Islands Development Bank, identified as part of her master’s thesis at the University College of the Cayman Islands. The study examined the characteristics of successful local entrepreneurs in the Cayman Islands.
It raises a question central to the work of a development bank, which essentially aims to lend to and support businesses that are going to be successful and identify the shortcomings of aspiring and established entrepreneurs that may cause them to fail.
In her interviews with local business owners, Ebanks found that besides the necessary excellent business acumen, common to all of them were self-efficacy and risk-taking.
Risk-taking, especially, is a standard characteristic of successful businesses which has been well researched and documented. But it is not just financial risk-taking, says Ebanks. “They worked long hours, some of them ended up in divorce. It took so much to make these businesses successful, giving up time with family and friends. So there were financial risks, but the social risks were definitely there as well.”
The successful entrepreneurs she interviewed were all very good at recognizing opportunities and had total self-confidence and a passion for what they do.
Critically, the business owners did not rely on luck or political handouts, she found. Successful Caymanian entrepreneurs did not receive duty concessions from government to do any of their projects. “It was their own sweat, love and tears,” Ebanks says. “These people took full responsibility and accountability for their actions and failures or setbacks of their businesses.”
This is a critical characteristic for a development bank because evidence shows that the more personal equity entrepreneurs have invested in their business, the more likely the business is to succeed and thus be able to repay any loans taken out for the launch or operation of the business. A full 100 percent financing would make aspiring entrepreneurs immediately less accountable and less responsible.
Yet development banks are still necessary to provide some of the financing needed for businesses to get off the ground when commercial banks turn out to be too conservative and restrictive in their lending. The latest statistics by the Economics and Statistics Office show that credit supply by local banks has become more constrained, and as loans by banks are drying up, a development bank is needed more than ever to make up for the shortfall, argues Ebanks, making a case for her own organization.
The Cayman Islands Development Bank, however, has not made any loans to businesses for quite some time because government was unable or unwilling to fund all of the activities of the bank. Currently, the bank operates only a student loan program, with funds generated from its own operations.
A report by Ernst & Young released in September investigated the opportunities for downsizing and privatizing government functions. It noted that political support is needed to make the development bank work effectively.
“If there does not exist a political will and support for the mandated functions of [the Cayman Islands Development Bank] endorsed by additional capital, then the whole service offering and function … can be abolished.
“There is no long-term benefit to [the development bank] continuing to operate in this existing state – which is effectively a run-off of the historical loan book with a very small amount of new lending,” the report concluded.
The political will is perhaps affected by the default rates for business loans at the bank, which in the past reached 60 percent to 70 percent as most of the loans were going to startups – the businesses with the highest credit risk.
But Ebanks says the bank has since tightened its loan terms and is also more aggressively pursuing the repayment of its loans, if necessary through the courts. Government, she adds, should craft a small business policy and capitalize its own government bank so that it can carry out some aspects of the policy.
Although business loans are important, Ebanks emphasizes that entrepreneurial activity is not affected solely by access to capital.
Most of the business people she spoke to concurred that Cayman, with an economic environment bogged down by rising costs, is not particularly business friendly.
“They said it is relatively easy to open a business, but right now it is not favored because the heavy reliance on foreign direct investment is hurting some of the homegrown businesses. The cost of doing business is so high that a lot of entrepreneurs are not entering the market because they see little reward in it now.”
There is also a perception among business owners that there is political interference in the business setting and that there is too much fronting.
Although the ease of opening a business still exists, the decision to become an entrepreneur is predominantly driven by the weak economy and high unemployment, rather than the desire to open the type of business the entrepreneur is experienced in and is passionate about. This has resulted in a high rate of business failure.
Ebanks says that what is currently driving entrepreneurial activity is simply low economic development. “People are opening businesses, but they don’t have the skill sets, they don’t have the passion, they don’t have the education, the back-up, all of these things.”
The development bank works with the Department of Commerce and Investment to teach aspiring entrepreneurs some of these skills. The Chamber of Commerce also offers programs beneficial to business owners. Still, more can be done as education and entrepreneurship programs are key, says Ebanks, who recommends in her paper that additional courses at UCCI addressing the understanding of financial statements, marketing or IT would help.
Once they have gone through these programs, the DCI is able to assist them with crafting a business plan that includes realistic projections and an assessment of threats and contingencies, which according to Ebanks are often missing from the business plans prospective borrowers present to her. The DCI is also able to discourage nonviable business ideas and unsuitable candidates.
“We don’t need any more beauty salons,” says Ebanks. “They need to look at what is really needed in the market right now.”
Once start-up entrepreneurs go through these steps, Ebanks says, she would be more comfortable if they approach the bank for financing.
Ultimately, many characteristics she identified in her research as contributing to business success are personality traits, such as drive and the need for achievement, rather than easily-acquirable skills. “Of course you have to be passionate about what you do, you have to feel confident,” Ebanks says.
From a banker’s point of view, there are the “five c’s” – character, capacity, capital, collateral and conditions – that determine the creditworthiness of potential borrowers.
“Character to me is more important than some of the others. If you can’t demonstrate that you are responsible and accountable and take ownership, those are key things. Character plays a huge role.”
This was also evidenced in her research, which found that social capital is a determinant of entrepreneurial success for Caymanian businesses. Social capital involves great leadership skills and how business owners treat their staff, their customers and the relationships they have with their suppliers.
“Another thing I found is that they all give back to the community, and that is critical to the social capital. They serve in nonprofit organizations, they do pro bono work, etc.”
Homegrown entrepreneurs, she says, create the financial and social prosperity that is needed in the Cayman Islands.
Social capital is a determinant of entrepreneurial success for Caymanian businesses.