Post 3 of 4 – Reimagining the Capital Ecosystem of the OECS
Author: Tony Regisford
Reading time: 7 minutes
Not every SME fits the crowdfunding profile. Some have a good product but lack a pitch that resonates with the public. Others are just not ready to let third-party investors in. They still need capital to move the business to the next level and commercial banks are not a practical financing solution.
This is where blended finance comes in.
So, what do I mean when I say, “blended finance?’ This sort of financing is the targeted and strategic use of development finance to attract commercial private capital toward sustainable development projects. Governments, multilateral banks, philanthropists that offer concessional money can make the strategic decision to use some of these monies to absorb a portion of the risk, making it safer and more attractive for private investors to participate.
SMEs could now get guarantees that cover part of a loan, first‑loss provisions could reduce lenders’ risk or patient capital could accept lower returns over a longer period.
in this post I explore four blended finance instruments, namely first‑loss provisions, guarantees, patient capital and matching grants – each already being used in the region in some form. Each has a role to play but each also has its limits.
First‑Loss Provisions
A first‑loss provision is a layer of funding that absorbs the first losses if an investment fails. In other words, the investor does not take the first hit.
Let’s take a more detailed look at how this works. A donor or development agency puts up a pool of money (say, 10% of a total fund) that is explicitly designated as “first‑loss capital.” If the fund loses money, that 10% is drawn down first. Commercial investors who put up the remaining 90% know they will only lose money if the losses exceed that first pool (the 10%). For example—instead of government running a small grant scheme that helps a few businesses, it takes that same pool of money and places it with a commercial bank as a first‑loss provision. The bank lends against it, knowing the first losses are covered. The same public money now leverages private capital. More SMEs get access. The bank takes manageable risk, and the public funds go further.
This is an effective way of making viable loans that commercial lenders would have considered too risky.
A relatable example of the same logic: The former government of St. Vincent and the Grenadines secured USD $15.9 million for geothermal exploratory drilling. If commercially viable wells were found, the funds would have become a loan to be repaid, and if no viable wells were found, the funds would have become a grant, and the government would have owed nothing.
Although this is not a traditional first‑loss provision, it reflects the same principle: donor money absorbs the early risk so that exploration and eventual investment can proceed.
Guarantees
Simply put, a guarantee is a promise by a third party to cover a portion of a loan if the borrower defaults. Unlike a first‑loss provision, a guarantee is a contingent liability. It does not require upfront cash; it only pays out if the borrower fails to repay.
Guarantees can reduce the collateral requirements that commercial banks insist on. A bank might accept a partial guarantee from a development agency instead of demanding land or buildings from the borrower as security.
An SME with good financial records and a viable business proposal but lacks collateral now has a better chance of securing a bank loan for expansion or some other growth purpose with a partial credit guarantee facility.
We have an excellent example of a working partial guarantee facility that is growing in impact. It is the Eastern Caribbean Partial Credit Guarantee Corporation (ECPCGC). Established by the Eastern Caribbean Central Bank (ECCB) in partnership with the World Bank, the ECPCGC has been operating since 2018. It provides partial guarantees to financial institutions, allowing them to lend to SMEs that lack sufficient collateral.
The Corporation operates in six OECS member states and partners with commercial banks, development banks, and credit unions. It offers five guarantee products:
- Classic Guarantee – for general business loans
- Working Capital Guarantee – for short‑term operational needs
- Start‑up Guarantee – for new businesses
- MSME Growth Guarantee – introduced in 2025; loans up to EC$50,000 with no collateral required
- Taiwan Women’s Growth Guarantee – designed for women entrepreneurs and currently active in St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.
The guarantees cover up to 75–80% of the collateral required for a loan. Notably, since inception, the ECPCGC has facilitated over 300 loans, valued at EC$30 million. By January 2025, 138 guaranteed loans had been disbursed, representing over EC$6.5 million in financing to entrepreneurs who would otherwise likely not have qualified for a loan. The World Bank has noted that demand for guaranteed loans is growing and that the results are sustainable over the long term.
Patient Capital
Like the word patient implies, patient capital is investment that accepts lower or no returns in the early years. In contrast to commercial bank lending, it takes greater risk and commits to a longer payback period (typically five to ten years), giving a business time to develop, scale, and become profitable before it needs to repay investors.
A good regional example is the Caribbean Development Bank’s Cultural and Creative Industries Innovation Fund. It offers financing to creative and cultural enterprises, with repayment terms structured to match the business cycle. Similarly, the European Investment Fund’s co‑investment approach is another demonstration of how patient capital can work at scale. The OECS has not tapped into either of these models, but I think they are worth studying.
For an SME, patient capital could make the difference between staying small and growing to meet potential demands. Consider a business with a proven product, a loyal customer base, and growing demand for its goods or services. It needs capital to increase production and distribution capacity but the revenue from new sales will take time to materialise. A commercial bank loan with monthly repayments starting in month one will not fit that timeline, whereas patient capital does.
Some of the most promising businesses take time to mature, including SMEs in the OECS. If we want them to scale up, create jobs and wealth, then we need to make patient capital available. It is a tried and tested model that we should adopt and pursue with urgency.
Matching Grants
As a method of regional development financing, matching grants are well known. A matching grant requires the business to contribute a percentage of the project cost. The grant covers the balance. This ensures that the business has “skin in the game,” which encourages commitment and accountability. This is different from a traditional grant, where the business receives money without any financial contribution.
For example—a business receives a grant of up to 80% of project costs but must contribute the remaining 20%. That contribution could be in the form of equipment, labour, or capital.
A recent regional example of this is the OECS Regional MSME Matching Grants Programme, implemented under the Unleashing the Blue Economy of the Caribbean (UBEC) initiative. It provides financial assistance to MSMEs in the blue economy sectors – tourism, fisheries, and waste management.
The programme requires a matching contribution: the grant covers up to 80% of project costs, while the business must fund the remaining 20% in cash.
Matching grants have already supported businesses across the region. In St. Vincent and the Grenadines, a kayaking business owner used the grant to purchase a 14‑foot dinghy with an electric engine to accompany kayaks and paddle boards. In Grenada, a coastal tourism enterprise used the grant to add a 2,000‑gallon rainwater harvesting system, improving water conservation in a harsh environment.
These are tangible, practical outcomes that demonstrate the effectiveness of well-designed and accessible matching grants.
The Limits of These Instruments
Each of these instruments has strengths and limitations.
First‑loss provisions are effective at absorbing risk and unlocking commercial capital, but they require concessional funding and can be complex to structure.
Guarantees reduce collateral requirements and do not require upfront cash, but they need strong institutional capacity and can be difficult to operationalise.
Patient capital gives businesses time to grow, but it is scarce and often tied to specific sectors or donor priorities.
Matching grants encourage commitment and are already proven in the OECS, but their scale is limited and they cannot replace a functioning capital market.
Limitations notwithstanding, together they give us a toolkit that can fill the gaps commercial banks and equity crowdfunding cannot reach.
The Fragmentation Problem
I could not end this post without mentioning what I consider to be “The Fragmentation Problem.” It is a big obstacle to effective financing in the OECS.
The World Bank, the CDB, the UN agencies, the EU, the bilateral donors—each operates independently with its own application process, reporting requirements, timelines, priority sectors, and geographic focus.
For an SME or a government agency, navigating this landscape with its many duplications and gaps is often tedious, confusing, and inefficient.
A regional blended finance facility could address this by acting as a single-entry point. It would coordinate existing agencies, simplify access, and aggregate small pools of capital into larger, more impactful funds.
This type of facility is exactly the kind of initiative the CARICOM and OECS treaties must have envisioned. After all, they speak of integration, cooperation, and shared prosperity. They talk about pooling resources, harmonising policies, and building a regional space where citizens can thrive. If that’s the spirit (and I am in no doubt that it is) then here is an opportunity to back it up with action. Create a regional blended finance facility to deal with the fragmentation that exists.
Possible OECS Next Steps
The OECS already has some of these instruments in place – notably the matching grants programme and the partial credit guarantee corporation. However, it is my opinion that they remain fragmented and under‑resourced.
A more coherent approach could perhaps include:
- A regional blended finance facility – combining first‑loss provisions, guarantees, and patient capital under one roof, and acting as a single-entry point for borrowers.
- Better coordination between existing instruments – matching grants, partial guarantees, and patient capital should be sequenced to support businesses at different stages.
- Scale—existing programmes are small, helpful but not transformative.
Questions for You
Here are some questions whose answers will help me better understand what is working and what is still missing:
If you are an SME owner, would a guarantee or first‑loss provision make you more likely to approach a commercial bank?
What would you need to access patient capital? Longer repayment periods? Lower interest rates? Technical assistance?
Have you used a matching grant? What worked? What did not?
Have you been confused by the fragmentation of development agencies?
Next Post: The African Parallel – What Botswana, Mauritius, and Rwanda Do Differently
In Post 4 I will return to the medium segment of 50 to 250 employees and ask what the OECS can learn from smaller African capital markets about junior listings and diaspora bonds.
But for now, the question is whether we can build a blended finance toolkit that actually reaches the businesses that need it.
Send your answers, disagreements, and observations to: tony@tonyregisford.com
Footnote: The views expressed in this post are mine alone, as Tony Regisford, and do not represent any organisation I work for or am associated with, including the St. Vincent and the Grenadines Chamber of Industry and Commerce, the OECS Business Council, and the Caribbean Network of Chambers of Commerce (CARICHAM).
