Growth & Jobs|Micro Credit Act will strengthen the microfinance sector

GILLIAN HYDE, general manager of JN Small Business Loans (JNSBL), said the Micro Credit Act will play its part in strengthening the microfinance sector because of the built-in mechanisms that will reduce the risks of the industry being used to launder money.

The Micro Credit Act 2021, which aims to licence and regulate microcredit institutions that provide financing to individuals as well as micro, small and medium-sized enterprises (MSMEs), was passed recently. The legislation is expected to impact how the sector operates and encourage ethical practices within the industry.

“The purpose of the Micro Credit Act is to, among other things: discourage microcredit institutions from lending money at excessive interest rates that are not justified by the risk,” said Hyde.

“It is also expected to outlaw unethical lending practices, threats, and intimidation; promote greater transparency and disclosure of pricing and terms of products and reduce the risk of the industry being used to facilitate money laundering. The Act also allows for the creation of a regulator to monitor the sector and ensure good business practices,” she added.

The JNSBL general manager added that the legislation, which microfinance institutions (MFIs) have welcomed, also seeks to strengthen the sector, thereby improving the long-term sustainability of the players and the industry itself.

“With the legislation, it is expected that there will be more players who will be able to drive the mission of providing greater access to credit for underserved segments, while supporting Jamaica’s national financial inclusion strategy,” she stated.

Hyde said the regulations may result in consolidation within the industry as different players strengthen their systems and structures to deliver more efficiently, while meeting the regulatory requirements.

“The ongoing challenges posed by the COVID-19 pandemic is also forcing microfinance institutions to rethink how services are provided, incorporating opportunities the digital space presents,” she noted.

She said there were several views on the act, with some expecting a fallout in the micro-finance space. However, she added that much has been invested in providing the service, with many Jamaicans being impacted positively as their quality of life improved through the assistance provided by the companies.

“At present, micro-finance institutions lend to thousands of persons who are seeking access to credit to invest in business opportunities, create employment and advance their personal lives to include investment in education,” she emphasised. “Therefore, improving the financial ecosystem used to power our MSMEs and provide financing for every Jamaican remains critical.”

Hyde revealed that while there was a tendency to paint all MFIs with one brush, she said the sector is diverse and contributes to the economy in a number of ways.

“MFIs contribute to the economy through job creation and the improvement in livelihood both directly and indirectly,” she said. “They provide direct employment by engaging with relationship officers, administrators and persons in other roles to ensure that their operations are run efficiently.”

BUILDING, MAINTAINING RELATIONSHIPS

She added that the sector has also built relationships with key stakeholders to ensure they were operating above board.

“Many MFIs have robust Know Your Customer (KYC) and Know Your Employee (KYE) stipulations in place. Also, the stakeholder relationships built with entities such as the Development Bank of Jamaica, EXIM Bank, Tourism Enhancement Fund have been important to extending credit to farmers, manufacturers, members of the tourism sector and other industries,” she noted.

“Additionally, our international stakeholder relationships with United States Agency for International Development (USAID) and the Inter-American Development Bank (IDB) have also garnered much fruit for the MSME sector. The USAID guarantee programme has allowed us to reach more at risk groups and more recently IDB’s Pilot Programme for Climate Resilience financed the implementation of several projects in the tourism and agriculture sectors to build resilience against climate change,” she added.

Hyde said she was optimistic that the sector would attract even more local and international funding to deliver on even more creative options for all Jamaicans to gain access to affordable and flexible credit. She added that this would further position Jamaica on a path to sustainable social and economic growth.