On The Line - IPED
PRIVATE ENTERPRISE DEVELOPMENT FOR THE YEAR ENDED DECEMBER 31, 2000
On The Line - Annual Report
Since its establishment in 1995, the Institute of Private Enterprise
Development (IPED) has developed into the country's leading Micro-finance
organisation. It has promoted growth and development through the provision
of business guidance, technical assistance and non-traditional credit
facilities to small and medium sized entrepreneurs and groups. IPED's policy
is to support and encourage the development and growth of all other economic
activities designed to improve the social and economic welfare of Guyanese.
This week's Business Page examines the performance and achievements of
the Company as recorded in its fifteenth Annual Report for the year ended
December 31, 2000.
The highlights of the year are as follows:
Value of loans financed
No. of jobs created
Contribution to GDP
The growth in the number of loans disbursed was 7.9% over 1999 but the
value of the loans was 4% lower than in the previous year. Average value per
loan in 2000 was $135,600 compared with $152,400 in 1999 while the average
number of jobs per loan remained at 2. The administrative cost per loan
increased by 6% from $13,990 in 1999 to $14,811 in 2000 despite the increase
in the number of loans.
Job creation continues to be a major focus of IPED and the projects and
businesses it has funded has helped to create and sustain employment for a
considerable number of persons. According to the Annual Report the jobs
created as a result of loans in 2000 numbered "over 9000". Indeed
job-creation is a key performance indicator used by IPED although the term
"jobs created/sustained" is really quite confusing and does invite
more careful analysis.
Since its inception, IPED has disbursed 25,556 loans with 27% going to
men, 46% to women and 27% jointly to men and women. Interestingly since 1996
women's access to IPED's Micro Loan facility has far outweighed that granted
to men and is steadily climbing.
According to the Report, IPED's clients' contribution to GDP at current
market prices in 2000 was 1.38%, down from 1.8% in the previous year. Given
the increase in the number of loans and the performance of the national
economy this is a bit surprising but ambiguity in the language may be
responsible for this.
2000 1999 %
G$Mn G$Mn Growth
Interest income 172.3 205.1 -16
Investment Income 55.6 36.4 53
Other Income 24.4 17.1 42
Total Income 252.3 258.6 -2.4
Expenditure 162.3 178.5 -9.1
Net surplus of income over expenditure 90.0 80.0 12.5
Average interest earned on loans was 20% compared with 24.3% in the
previous year. Interest expense on the other hand averaged 4% making it by
far the highest interest spread among all financial houses in Guyana. By
comparison, NBS which also enjoys tax free exemptions, average interest
earned is 10.8% while interest paid is 8%.
Notwithstanding the larger net interest income, NBS pays out 32% of NII
in staff costs compared with 18% at IPED. While NBS discloses information to
allow for the cost per employee to be computed, this is not possible for
Operating expense is made up of interest of $22.7Mn paid on total loans
outstanding, salaries and allowances of $38Mn while the provision for
doubtful debts fell from $78.1Mn to $47.5Mn. The second largest expenditure
item shown in the financial statement is other expenses of $40.8Mn for which
no information is provided.
In spite of the decline in income, the Company achieved a net surplus of
income after expenses of $90M, a 12.5% increase over 1999. However, income
generated from earning assets fell from 14.8% in 1999 to 10.9% in 2000. The
return on the Institute's assets remained stable at 5.5%.
Other operating income to total assets showed a small increase of 1.2%.
The share of interest income used up in staff cost increased by 12%.
The income and expenditure account indicates that only interest on PL 480
loans is recognised in the financial statements despite the fact that the
IDB loans attract a commission of 1% and the EIB loan, interest at the rate
The increase in the number of loans by 2426 since 1995, the continuing
poor performance of the economy and the increase in the value of its loan
portfolio has increased the risk associated with IPED's operations. In
apparent recognition of this, the Chairman in his report stated that
"the Institute has cautiously made a decision to create progressive
allocation for risk coverage".
However, while the non-performing loans increased from $69Mn in 1999 to
$86Mn in 2000 the provision for bad debts fell from $116Mn in 1999 to $64Mn
in 2000. Loan provision as a percentage of total loans fell from 12% in 1999
to 7% in 2000 which is difficult to understand in the current economic
climate. Perhaps this might have been clearer had the financial statements
disclosed the movement of the loan loss provision where there seems to be an
unexplained difference of $100Mn.
Like the New Building Society, IPED is an extremely liquid company with
liquid assets of $708Mn out of total current assets of $1.5Bn. $217Mn are in
cash and bank balances, while $331Mn is held as a short term investment.
Despite the significance of this amount no details are given of the
investment except to say that it "represents monies held for repayment
of loans". Loans payable during 2001 amount to $183Mn.
Related Party Relationships
One of the comments usually made about the IPED's accounts is the close
relationship which it has through common directorships with Demerara
Distillers Limited and Demerara Bank Limited. Accounting Standards require
that since a related party relationship could have an effect on the
financial position and operating results of the reporting enterprise, then
transactions between related parties should be disclosed. Indeed, the
operating results and financial position of an enterprise may be affected by
a related party relationship even if transactions do not take place between
them since the mere existence of a relationship may be sufficient to affect
the transactions of the reporting enterprise with other parties.
IPED continues to justify the accolade as a leading micro-finance
organisation in the English speaking Caribbean. Indeed the Prince of Wales
Youth Trust chose IPED to manage its Guyana Youth Business Trust and IPED
continues to expand both geographically and in the range of its products
which now include training, accounting and managerial and technological
services to institutions and organisations.
The Annual Report, though late, continues to be full of useful
statistical information which some of the more established organisations in
the country do not disclose. The Report is aided by graphs and charts
although the numerous examples of confusion between its and it's is