Devon Dick
LAST WEEK Wednesday on Roots 96.1 FM, one question posed to Minister of Finance Dr. Omar Davies by a panel consisting of Lambert Brown, Richard Troupe, Renny Taylor and me was what strategy he was going to employ to narrow the band between savings rate and loan rate bearing in mind that his moral suasion had not worked. His view was that competition would help to bring it down.
Jamaica's spread is too much when compared to financial institutions such as Chelsea Building Society. Chelsea, the 6th largest building society in the United Kingdom, with assets of $900 billion, has been successful from its inception in 1875 with its policy. This financial institution has advertised rates such as 5.39 per cent for a five-year fixed mortgage rate and going to 6.74 per cent for the rest of the life of the mortgage. The savings rate is 5.25 per cent. Based on this spread, it can be concluded that the financial institutions spread here is too much. A couple of weeks ago, the United States dropped its mortgage rate to about five per cent and the spread is nothing like the spread here.
No wonder persons who have accounts here are getting mortgages overseas to purchase houses here. Why are we so different in Jamaica? Why is our spread between savings rate and loan rate so high?
MORE REASONABLE SPREAD
For years, Dr. Davies, the Jamaica Agricultural Society, the Jamaica Manufacturers' Association and others have been agitating for more reasonable spread between the loan and savings rates to no avail. This is because financial institutions have lost the plot. The customers should get a service or good at a reasonable price and just profit for the shareholders. In addition, the management and workers should get a liveable wage and all must be responsible and pay a fair tax for the benefit of the community. However, things are lopsided toward senior management and shareholders.
The genesis of building societies, mutual societies and credit unions was a response of church people to harsh usury policies. In 1942, the usurers had a stranglehold on the working class and the Roman Catholics gave Fr. John Sullivan a mandate to establish an organisation that would lend money at a lower interest rate. That led to the birth of credit unions here and the Caribbean.
According to David Lindo in his book on The Jamaica Mutual Building Society, it was formed in response to high interest rates. Clergymen who wanted to help working-class persons to be able to afford shelter formed the building societies. However, too many financial institutions are behaving like the proverbial Shylock.
The Bible condemns usury. And church people like in days of old should respond to usury policies. Church persons must start or continue attending shareholders meetings and help change the high spread. Christians in senior management must not only implement decisions, but must initiate changes in policy directions. Start with the spread on foreign currency exchanges between buying and selling rates and also the difference between savings and loan rates.
Huge profits that are based on a wide spread and not on dominance in the market or efficient operations or better productivity are not sustainable.
I have spoken to persons in the financial sector, including the chairman of one of the leading financial institutions and a managing director, about the almost double-digit spread here compared to the U.K. Some of the possible reasons for U.K. companies having a much smaller spread included larger clientele, cheaper funds borrowed, larger account balances, small mortgage portfolio, higher yields from other investments and a more efficient operation. These cannot be an excuse for the Jamaican spread but should motivate the locals to meet international standards.
Competition alone will not do because these institutions behave as a cartel. The customers must agitate for a better deal and attend shareholders meetings and move resolutions to get a more reasonable spread.
Rev. Devon Dick is pastor of Boulevard Baptist Church and author of 'Rebellion to Riot: the Church in Nation Building'.
