DBJ targeting 10 more fincos for upgraded CEF credit facility

The Development Bank of Jamaica has over $45 billion to pump into the economy through its redesigned Credit Enhanced Facility, CEF.

Just over $5 billion has already been taken up by four financial institutions which intend to spread the funds across micro, small and medium sized enterprises as a partial loan guarantee for the businesses without the required collateral to access loans.

DBJ is looking for 10 more institutions to take up the remaining $40 billion.

“I’m very confident that the financial institutions who have not get signed on, they will. Those that have not yet signed are going through the legal agreement now, so within the next week or two we expect them to come on board,” DBJ Managing Director Milverton Reynolds told the Financial Gleaner during the launch of the Credit Enhanced Facility on Thursday.

“It’s not only that we want them to sign on, but want the take up to be huge as we have seen with some of the others who have already signed on,” he said.

So far, Sagicor Bank, National Commercial Bank, JMMB Bank and the First Heritage Credit Union have pledged support to finance the expansion of MSMEs without traditional collateral, while some of the others said to be considering partnerships are Scotiabank, First Global Bank, JN Bank and COK Sodality Credit Union.

The Jamaica Manufacturers and Exporters Association also signed a memorandum of understanding earlier this month with the DBJ to allow its members to access the facility.

The revamped CEF has been capitalised through funding from the Inter-American Development Bank in the amount of US$20 million and the World Bank at US$5 million.

DBJ will provide CEF funding to financial houses, inclusive of micro financing firms, for a fee of 2 per cent. Reynolds, who noted that he was not able to state the estimated lending rates of the financial institutions, said he is hopefully that the pass through to business owners remains the same or marginally above the fees charged by the DBJ.

“Some will talk about the fees but this is much bigger than the 2 per cent charge. It allows the businesses who would not have been able to get financing because they didn’t have sufficient collateral to now receive the loans,” said the DBJ head.

“The 2 per cent fee is really quite inconsequential in the scheme of things and the improvements that we have made to it, it really means that there is no small business out there that should not be able to access financing once they have a viable project that they want to implement, because security is no longer an issue,” he argued.

DBJ’s redesigned facility enables its network of approved financial institutions and microfinanciers  to accept non-traditional collateral and provide coverage based on the borrower’s character and future cash flow of the business. The DBJ, through the CEF, will guarantee 80 per cent of loans valued at $30 million and will cover 90 per cent of loan amounts of $10 million or less.

Start-ups, however, are allowed 80 per cent coverage for loans not exceeding $5 million.

CEF is available to enterprises that earn less than $425 million in revenue per annum, are tax compliant, and have a good credit history. The facility can be accessed by MSMEs as an alternative to collateral for the expansion of businesses. As for the lender, the facility lowers the risk of loan defaults.

Since its inception a decade ago, in 2009, the CEF has facilitated loans for over 550 MSMEs, totalling $7.82 billion. These businesses are said to have created over 2,250 jobs to date. Other MSME facilities provided by the DBJ include vouchers for technical assistance, a venture capital programme and loans for start-up and expansion.

karena.bennett@gleanerjm.com