KINGSTON, Jamaica – There are more than 700,000 persons seeking funding to start or expand micro, small and medium scale enterprises (MSME) in Jamaica, says Earl Jarrett, General Manager of Jamaica National Building Society (JNBS), and a director of JN Small Business Loans Limited.
What is preventing the country from unleashing this massive private sector potential is a set of very basic challenges, Mr. Jarrett said. The good news is that these challenges can be overcome if the effort is made to address them.
“Micro lenders in Jamaica were touching but the tip of the iceberg in terms of the potential for the MSME sector,” he stated. This is based on a study by pollster Bill Johnson who found that there is a market of approximately 722,000 persons who would like to access funding to start or expand their business.
Mr. Jarrett pointed out that developing this potential market is hindered by deficiencies with the potential borrowers, as well as in the operating environment of the sector. He was speaking at the Civil Society Forum (April 15) prior to the 5th Summit of the Americas in Port-of-Spain, Trinidad & Tobago.
One fundamental issue retarding the sector’s progress, he declared, is that many budding entrepreneurs lack commercially acceptable property titles, so the value of their land cannot be fully utilized for investment purposes. This can be addressed by the mechanisms which now exist to allow for enhanced credit guarantees to be applied, so that common law titles can be used as loan guarantees.
The issues with property ownership are directly tied in with the generally insufficient capital and absence of securitization in the sector. The General Manager further explained that, “Medium and small scale entrepreneurs traditionally have difficulty in accessing needed support as many financial entities still hold the view that loans to small businesses are not commercially viable.”
These financial entities treat non-traditional collateralization of loans as too risky a venture, he said. This is another case where enhanced credit guarantees could be useful.
A Regional Clearing House for the sourcing of funding for microfinance entities can also be established by collaborating with the Caribbean Microfinance Network, he stated. “In this way, the Clearing House could offer centralized services in the administration of the funding for on-lending to clients.”
Financing of the sector is also a problem as insurance policies available for most of these businesses are usually limited or costly. The region is prone to annual disasters; therefore, vulnerable borrowers need insurance coverage to avoid being “wiped out” in a crisis.
An Insurance Fund needs to be developed, into which micro lenders can invest to reduce the risks in individual countries arising from unforeseen events, Mr. Jarrett maintained. “This regional support for lenders and borrowers would be particularly useful in times of national disasters.”
One very important need is the establishment of a Credit Bureau for micro-lenders. This would improve access to data about clients and for the security of the funds disbursed.
“A critical element of microfinance is risk management, given that loans made to the MSME sector are often high risk,” he stated. A Credit Bureau could provide a financial profile of clients, which is critical to the loan approval process.
Regional Money Lending Acts, which set limitations on lending rates to the sector, represent another constraint on the sector. He said regulators need to consider the cost of effectively administering the small loans made in the sector, and at the same time institutions need to adopt technology which can reduce their costs.
“Regulators and policy makers need to understand concepts and challenges behind the provision of service to underserved communities,” he stated. This lack of understanding results in challenges in getting the necessary regulatory approvals to establish community financial services, while the entrepreneurs find that getting the required operating licenses and permits is often time consuming
Micro, small and medium scale enterprises provide more than half the country’s jobs, but lack an adequate supporting framework to facilitate their growth. Mr. Jarrett said feasible programmes to strengthen the small enterprise sector need to be developed, in order to promote entrepreneurship.
His recommendations are to be included in the agenda being developed from the private sector and civil society consultations being carried out in the lead up to the Summit of the Americas, being held from April 17-19 in Trinidad & Tobago.
Mr. Jarrett heads one of the region’s largest building societies, which is the third largest financial institution in Jamaica. The 135 year-old Jamaica National is a multi-national entity, with operations in the United Kingdom, the United States of America and Canada; as well as the wider Caribbean.
