Yaneek Page | How to start a microfinance company

QUESTION: I am currently interested in starting a Payday loan company. In all honesty I have began on a small scale. However, I would like to legitimise and expand my business. My issue however, is that I'm unable to get any information whatsoever in legitimising the business. I do not want to run afoul of the law. Any advice you can give, especially as it relates to the legal framework is greatly appreciated. I look forward to your response. — Payday entrepreneur

BUSINESSWISE: Currently there is no specific legislation that regulates or governs the registration or operations of micro finance companies, despite promises from successive governments to enact a microlending law. The most recent pronouncements from the current administration was that a  microcredit bill would have been tabled in parliament no later than February 2018. According to the Jamaica Information Service consultations have already been held with key stakeholders in the industry and the proposed new law will require the registration and licensing of microlending companies to allow for formal inclusion in the financial sector, to attain international standards and best practices in transparency and governance, and to provide greater protection to consumers. I would urge you to pay particular attention to the developments in this area by following the Ministry of Finance on  social media, calling their office for an update, and paying attention to releases issued via their website or that of the Jamaica Information Service. You may wish to go even further and set Google alerts for the key words ‘micro lending Jamaica’ or ‘micro finance Jamaica’ so that you can receive a message directly to your email about anything posted online related to the subject.

As a business operator in general, you are subject to and should familiarise yourself with the Income Tax Act, the Fair Competition Act, the Consumer Protection Act and the Labour Relations And Industrial Dispute Acts, just to name a few. I have highlighted these so you can strengthen your internal processes and streamline your operations in those key areas which many business owners neglect to their peril.

At present there are two main statutes which would govern the operations of your payday loan business. The first is the Companies Act, 2004, a document which may prove a challenging read at almost 400 pages long, and which prescribes the incorporation and registration of businesses. The second, and most significant for your business at this time is the Money Lending Act, which is a much easier read, and only 11 pages long, and sets out conditions and several restrictions for the business of lending. It can be found at the can be found on the website of the Ministry of Justice.

The Money Lending specifically addressed instances where interest charged exceeds 20 per cent per annum, penalties for false statements and representations, moneylending advertisements, form of moneylending contracts, prohibition of compound interest and provision as to defaults and obligation of lender to supply information as to the state of the loan and copies of documents relating to the loan.

There are also provisions governing bankruptcy proceedings for lender’s loans and strict prohibitions for charges related to expenses on loans.It is important to note that breaches of the act may result in criminal prosecution. For example the penalty for false, misleading or deceptive statements or  representation is conviction of an offence and a fine of up to one hundred thousand dollars or imprisonment for up to two years or both such fine and imprisonment.

It is for these reasons that many microlending institutions have sought and attained ministerial exemption from the Money Lending Act. One resource which may be useful for you in the conduct of your business is the Jamaica Association of Micro Financing (JAMFIN). According to its website it was established in 2011 by a group of major players in the microfinancing sector as a not-for-profit company to “support the development of the micro enterprise sector as a key player in national economic development through the provision of accessible, appropriate and timely financing, training and business development services to individuals and enterprises”.

A representative of the association with whom I spoke by telephone advised that there were currently under 15 members in the association and that the membership fee ranged from $3,000 to $55,000 monthly depending on the size of the business.

The membership brochure, which was e-mailed to me by the representative, outlined three categories of membership and required that potential members provide proof of company registration, proof of address, tax compliance certificate, photo identification and proof of exemption from the Money Lending Act — although they also noted that they are willing to support and guide potential members through the process of exemption via the Ministry of Finance. Good luck.

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- Yaneek Page is an entrepreneur and trainer, and creator/executive producer of The Innovators TV series.

Email: info@yaneekpage.com

Twitter: @yaneekpage

Website: www.yaneekpage.com