Gov’t urged to review access to relief loans for seasonal earners

A call is being made for the Government to reevaluate how it provides funding to certain economic groups, amid revelations that just over $1 million of a near two-year-old $700-million loan programme for COVID-hit transport and entertainment interests has been disbursed.

“Operators in the transport and entertainment sectors have a very complicated relationship with cash flow,” said Germaine Bryan, the principal consultant for Gerbry Business Ltd, a local outfit that works with start-ups and small and medium-sized enterprises to build their capacity.

“Their money is most times seasonal, and the demands of their actual service delivery don’t always make space for them to do proper record-keeping.”

According to Bryan, the situation “is showing up how incompatible that form of financing is with those economic groups”.

This week’s Sunday Gleaner reported that, since the programme was launched in August 2022, no loan has been issued from the $200 million set aside for transportation players such as taxi operators, while only $1.25 million has been disbursed in the entertainment sector out of a $500-million fund.

The funds were earmarked for stakeholders whose income-earning activities were disrupted by the COVID-19 pandemic, and could be used for working capital, debt refinancing, and capital expenditure.

The Development Bank of Jamaica (DBJ), a state financier, provided the update on the loans, which it is offering through private moneylenders such as microfinance institutions (MFIs).

It said persons in the entertainment sector have not reported any challenges but those in transport have.

“Based on consultations with members of the sector, we understand that the individual operators and associations expressed concerns which included interest rates and collateral requirements by the MFIs,” the DBJ explained.

ALWAYS A CHALLENGE

Bryan contends that it was always going to be tough for seasonal earners to satisfy MFI requirements for “proof of a strong, steady history of cash flow”.

“If the operators are not making the time to record their cash flow, then it’s hard for MFIs to justify giving them a loan which requires consistent monthly payments,” he said, adding that the authorities have to push harder to get the operators into the formal banking system.

“Many of them are not passing the cash through a bank account, and if they are it’s a personal account which makes it difficult for MFIs to rationalise their business financial history.”

Bryan, a former business adviser at the government-owned Jamaica Business Development Corporation, said part of the solution lies with greater use of the Security Interests in Personal Property law passed in 2013, which was seen as key to help people use untraditional collateral to access loans.

“[It] basically allows people to list movable assets as collateral in fundraising efforts. I think the Government needs to work with the banking sector to help them to interpret the legislation more and incentivise their use of it in accepting alternative asset classes as collateral for a loan,” the consultant said.

CALL FOR REVIEW

Opposition Spokesman on Finance Julian Robinson supports the call for a review.

“There is a need to reevaluate these grant and loan programmes and make it easier for applicants to access them.

“There are too many stories of funds not being accessed either because the process is too cumbersome and bureaucratic or the intermediary institutions impose conditions that make it difficult for the applicants.”

Egeton Newman, president of the Transport Operators Development Sustainable Services (TODSS), whose membership stands at more than 11,000, and the Jamaica Music Society (JAMMS) raised concerns about the interest rate of up to 13 per cent which lenders are allowed to charge, in addition to the collateral requirement.

“You talk about a little man who wants $50,000 to borrow and he only has one taxi and he’s told to bring his banking information, have his income and expenditure. It was impossible … and, therefore, we could not take up the loan,” Newman said.

Lasco Microfinance Limited, one of the lenders involved in the programme, said it welcomed the opportunity to participate. But Ricardo Thomas, assistant general manager responsible for credit and administration, said many of the transport operators wanted more than the DBJ allowed.

Some operators wanted amounts that would allow them to purchase vehicles, which would have exceeded that $750,000, but then even within that $750,000, … you still have to apply your own risk appetite and matrix, how you are going to lend [these] funds in a responsible way. Remember it’s not a grant, so it has to be done in a manner to ensure that DBJ gets back their money, and the institution gets back theirs,” Thomas explained.

The issue has spotlighted the pace of the Government’s financial inclusion thrust.

A 2022 Inter-American Development Bank report found that “despite progress in recent years, Jamaica’s financial sector must continue to develop to ensure that businesses and individuals are able to secure sufficient resources to support entrepreneurs and companies seeking investment and working capital”.

Its survey data showed that a large proportion of firms in Jamaica face severe challenges in terms of obtaining credit, and that these challenges became more acute because of the COVID-19 crisis.

It noted that about 27 per cent of small firms, the largest block, said they did not apply for credit from lenders because of high interest rates, while 19 per cent said they did not think they would be approved.

Jamaica’s financial inclusion efforts have been anchored in a national financial inclusion (NFI) strategy launched in 2017.

A 2023 Bank of Jamaica study found that 77.2 per cent of adult Jamaicans had a bank account, which meant that 22.8 per cent did not. Those persons were more likely to be from the lower socioeconomic group and reside in rural areas.

“Increasing access to owning bank accounts to the population as a strategy on its own does not guarantee increasing NFI and/or increased NFI efficiencies. Strategies focused on improving awareness, perceptions, and attitudes of consumers towards banking products and services would be more likely to deliver higher rates of consumer engagement,” the report said.

jovan.johnson@gleanerjm.com