By K. C. Soares, Contributor TODAY I would like to take a closer look at the credit facilities available to the small business sector. I will look at the institutions exclusively involved with the sector, analyse the systems in place and put forward suggestions for improvement.
The main credit institutions that deal exclusively with the small business sector are the National Development Foundation of Jamaica (NDFJ), Self Start Fund (SSF), Micro Investment Development Agency (MIDA), Jamaica National Small Business Loans, Development Options, and Micro Enterprises Limited.
The last three institutions mentioned above deal specifically with the micro-end of the small business sector. The lending limits vary as the micro-financing institutions cap loans at $100,000, while the SSF and NDFJ have limits of $1.5 million and $5 million respectively. Most of what I will say will be with respect to the institutions with the higher limits.
As it now stands, the operations of the above institutions are centralised. Usually, there is a head office in Kingston where all decisions are made. The branches collect data on loan applications and these are then sent to Kingston for a decision.
TIME CONSUMING
The collection of data and the packaging of the loan proposal at the branch level tend to be very time consuming. The fact that applications have to be sent to the head office (usually in Kingston), which in turn process the applications and then relay responses back to the branch, makes the process even more time consuming.
This process takes anywhere between six weeks and 12 months. I have had unfortunate experiences in some of these institutions where loans of less than $500,000 take more than six months to be approved and this is after all the required documentation is submitted.
At one particular institution, a loan of $200,000 actually took nine months to be processed. This is totally unacceptable. Can you imagine the opportunities lost while waiting for nine months to have a loan processed? If money is required to purchase raw materials, how will a business function while waiting? No wonder the small business sector is in a bad state.
If there is to be any progress in the sector there have to be changes in the way these institutions do business. In this regard I would like to put forward some suggestions.
DECENTRALISING OPERATIONS
Ideally, there should be only one institution, with branches strategically located islandwide. To this end, there should be at least one branch in each parish.
Each branch should be headed by a well-trained manager. Each manager should be given a certain amount of autonomy, thus decentralising the operations. For example, the branch manager should be able to make loans at the branch level without having to seek approval from the head office. With this system, loans should be processed within a matter of days (one to three days is a reasonable expectation).
For security reasons, each branch should be allocated a limit up to which it may lend without prior reference to a board of directors, and those above the limit should be approved by the board of directors with input from the branch manager.
On the matter of collateral, the requirements here need to be less stringent, even though they are not as rigid as is the case with commercial banks. At the moment, the benefit in collateral acceptance is, however, only at very low levels of credit required.
SECURITY
At these institutions, household furniture and appliances are readily accepted as collateral for loans. However, the loan limits here does not usually exceed $100,000. How then will the small businessman secure a loan of say $1 million? He is usually required to provide the same level of security as is required by the commercial banks. This is where these institutions need to be more accommodating. Being accommodating means all persons should be treated in the same manner regardless of colour, class or creed.
Finally, there should be ongoing publicity about what can be achieved and how this can be achieved, as more people need to be informed about the possibilities of setting up their own businesses.
If implemented, I am of the firm opinion that the foregoing will resulting a more efficient system, and one which will be more inclusive. With funds moving to the small business sector in a timely fashion and in adequate amounts, the sector is expected to grow. A vibrant small business sector will result in a healthy economy and ultimately an improvement in the standard of living for all.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com
