Shaw cracks whip for lower interest rates

After years of pleading with commercial banks to lower their interest rates on loans to small, micro and medium-sized enterprises (SMEs), Finance Minister Audley Shaw last Wednesday declared that he had started the ball rolling to get those financial institutions to fall in line.

After signing a US$20-million (J$2.56 billion) credit enhancement loan programme for SMEs, to be funded by the Inter-American Development Bank (IDB) and executed by the Development Bank of Jamaica (DBJ), at his Heroes Circle, Kingston office, Shaw explained that he had kick-started the process with an in-house directive.

"I have instructed my minister of state to prepare the instruction to my own ministry that our mark-up cannot be four per cent; it has to be no more than two per cent," Shaw said.

He then went on to share the strategy for getting the approved financial institutions (AFIs), through which the money will be on-lent to SMEs, to follow this lead.

"We are going to be giving a very kind suggestion to the DBJ that they cannot mark up at one and a half per cent," he said.

"Their mark-up must be no more than one per cent. And then we are going to have a very careful and friendly discussion with the AFIs and suggest to them that in the circumstances, and with our collective mission, they must mark up no more than three per cent. In which case, we can be talking about six to seven per cent money, instead of nine and a half to 10 per cent money," the Minister said.

Even at 10 per cent, that would represent a significant break for SMEs, given the 19 per cent and upwards interest rates which have strangled many promising businesses and prevented many from even getting off the ground, Shaw said.

The money will be disbursed over five years.

... DBJ looks to more efficient, effective programme management

For Milverton Reynolds, managing director of the Development Bank of Jamaica, a US$4-million per annum tranche presents an excellent opportunity to ramp up the Bank's existing loan programme for the SME sector on a grand scale. The timing could not have been better, he said.

"There is a technical assistance that will allow us to put in place an electronic platform where we will be able to issue and process guarantees electronically, rather than doing it manually as we now do," Reynolds said.

"This will enable us to monitor and manage the programme far more efficiently and more effectively. We are also going to be looking at enhancing the current project to move it from 50 per cent to 90 per cent of guarantees," he added.

Julie Katzman, executive vice-president of the Inter-American Development Bank, who signed on behalf of the multi-lateral agency, applauded the initiative, pointing out that finding the right balance in the trade-off between the amount of guarantee one provides and the kind of risks the financial institutions are willing to take could be the deciding factor that spurs greater business activity.

"You have to manage that carefully and I think that the intent is to find the space between 50 and 90 per cent guarantee so that the banks have enough skin in the game," she said.

"But instead of being afraid to take risks if you provide a bit more guarantee, they take a bit more risk - (and) they lend to a few more companies, you begin to see a greater impact," said Katzman.

"So the idea is to have the kind of flexibility to let Development Bank of Jamaica manage the programme within those parameters to try and optimise both sides of that equation, at the same time reaching more companies but also making sure that the banks perceive that they themselves are taking risks and that they are developing relationships with those companies," she added.