What is Microfinance and Microcredit?
Wikipedia describes Microfinance, as the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.
They also describe Microcredit as the extension of very small loans (microloans) to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.
The microcredit segment in Jamaica has been growing as companies continue to see opportunities here. NationGrowth Microfinance Limited which was launched in March 2008 by Aubyn Hill is one example of a growing company. Launched in 2008, they are now listed as having 7 branches.
NationGrowth Microfinance Limited, lends no colateral loans to customers ranging between $10,000 to $500,000 between 3 to 24 months which can be repaid weekly, fortnightly, or monthly. This helps them to achieve their goal of, as they describe it ‘…providing financial services that are readily accessible by the economically active poor’.
Participants: Who are the major institutions?
So who are the main participants in this market? According to the JIS, there were seven micro finance institutions (MFI) in July 2011. They include;
- Access Financial Services Limited
- Jamaica National Small Business Loans Limited
- NationGrowth Microfinance Limited
- Micro Credit Limited, and
- Churches, St. Elizabeth, and St. Thomas Cooperative Credit Unions.
Performance: How is this segment doing?
This 2010 Jamaica Observer article, which captured the government’s analysis of the performance of this segment stated the following;
Last fiscal year, MIDA disbursed approximately $172.11 million or 877 loans, which is estimated to have created or retained a total of 1,173 jobs, according to Samuda. Additionally, the (Self Start Fund) SSF disbursed 113 loans totalling approximately $27 million while Development Options Limited (DOL) disbursed 3,500 loans valued at $186 million, creating and retaining a total of 3,427 jobs and Pan Caribbean distributed $115.4 million, with a total of 2,599 loans.
Possibilities: Growth or Decline?
The same Jamaica Observer article highlighted the intense demand for micro related lending.
Last fiscal year, the Government also provided the Jamaica National Micro Lending programme with some $200 million last year for its micro-lending programme.
“That money was disbursed in two months. I am advised that the arrears rate is less than five per cent,” the Minister said. “When you consider that those loans were made without the reliance on traditional collateral, we must conclude that this is a highly successful programme and that honest small people repay their loans.”
Problems: What are the major issues in this segment?
The problems that seem to exist however (which micro finance businesses are supposed to solve), are credibility and collateral issues. Documentation and business records are also a problem with this segment as sometimes businesses cannot provide the necessary paperwork (Taxpayer Registration Number, Tax Compliance certificate, and business financials). However, as the government stated “…it is against this background that the MSME credit bureau and the Junior Stock Exchange have been introduced.”
Support (and opposition) for Micofinance
While there has long been the recognition of the importance of microfinance institutions, there is more growth and support in this area.
In April 2009 the Development Bank of Jamaica (DBJ), cognizant of the role that micro, small and medium-sized enterprises (MSMEs) contribute to the development and stimulation of the Jamaican economy, established with the approval of the Government of Jamaica a Micro Finance Window. The DBJ provides wholesale funding to micro finance institutions (MFIs) for on-lending to entrepreneurs.
The DBJ has been designated as the Government of Jamaica’s lead agency for co-ordination of all related MFI industry interventions.
However there is the strong view that microcredit programs may not bring significant macroeconomic growth to Jamaica as our situation is, while comparable, is quite different from the Grameen Bank and the people of Indonesia. One opponent highlighting this view states
For all of the success of the Grameen Bank and others, 18,000 farmers committed suicide in India last year because they could not repay micro loans!
What do you think about microcredit in Jamaica and the Caribbean? Do you think there is a great demand for these kinds of products?