By Errol Gregory, ContributorTHE JAMAICAN Micro finance sector is at an interesting juncture. Two weeks ago, a new micro finance company Micro Enterprise Financing Limited (MEFL) involving a tripartite combination of three power houses namely BNS, The Canadian Development Agency (CIDA), and Kingston Restoration Company (KRC), started disbursing loans.
The new credit facility that employs a group lending methodology, targets low income urban micro entrepreneurs with little or no collateral. Loans can be used as working capital, for purchasing raw materials, to acquire inventory, financing the expansion of an existing business and for product diversification. There is a loan limit of $6000 for the first group loan, usually made up of four members, but after a group has borrowed for three cycles (12-40 weeks), members of the groups can borrow individually.
On the face of it, since the group methodology has been tried in the past with mixed fortunes, the new facility could be brushed aside as more of the same. Nonetheless there are some distinguishing features about this new facility that augur well for its success and signal an exciting phase for micro credit lending. For one thing, the entry of BNS the island's top performing commercial bank will be a tremendous psychological boost for the sector. This is especially so as Scotiabank is known for its penchant for exercising due diligence and its essentially conservative calculated investment style. BNS's entry into the micro credit market that only recently gained legitimacy in official government policies will therefore give the sector a new level of credibility and visibility.
Additionally, the new company MEFL is quick to point out that its group lending credit product is the only one that it is marketing and concentrating its energy on. This is unlike what occurred in the past where the group lending methodology was offered mainly as part of a mix of competing loan products.
Further Debra Williams, Executive Director of MEFL contends that its field officers will not operate as traditional loan officers but will be promoting the credit facility in the communities and helping to build group cohesiveness among potential borrowers. A point allied to this is that Scotiabank has assigned two of its senior officers to the company to ensure its success. In addition Scotia bankers contend that the unequivocal support from its top honcho Bill Clarke is one factor that should contribute to the company's success. It is of course an open secret that support from top leadership is seen as a critical X factor driving successful corporate initiatives.
But critical though Scotiabank's entry is to the market it should be remembered that already there were encouraging signs that the sector was being treated as a bona fide sector and not an appendage to the small business sector. This is so as Jamaica National Building Society- another of the island's financial heavyweights - had entered the market with its JN micro credit facility. This credit scheme had the appeal that it was relatively accessible through the existing island wide JN network. This was of course in addition to the contribution of Development Options Microfin Credit facility that had licensed some fourteen non traditional credit providers to move its loan products. In recent times there has been a slowing down of the rate at which these non traditional lenders are being licensed to move funds.
Not to be overlooked are the older institutions serving the micro sector such as the National Development Foundation of Jamaica, The Self Start Fund and the private sector led COPE Foundation Ltd that specialises in micro credit.
All told then the islands micro sector is poised for expansion. This augurs well for the productive sector. Regrettably however the sector still remains constrained by the broader macro economic problems of the debt crisis and lagging growth rates. Additionally, Maureen Webber, Development Specialist, and President of Development Options believes that there is still need for an official policy for the sector. In her view such a policy should address strategies for reducing expenses micro entrepreneurs incur in bringing their operations within the formal system. On top of this also is a need for policies relating to the survival of the existing micro credit institutions especially in the area of taxation policy.
No doubt, given Dr. Davis' decision to make Junior Minister Deika Morrison responsible for bringing the informal sector within the ambit of the formal economy, these are issues that will be faced squarely at this time.
With additional financing prospects now available for the sector, courtesy of MEFL, it is an opportune time to take a holistic approach and get the policy framework right for the sector. This is one way of ensuring that the exciting times being experienced by the sector are converted into real gains. After all the sector deserves a break, doesn't it?
