The number of microfinancing institutions legally operating in the sector has remained steady despite concerns at the onset of the passage of the Micro Credit Act that some – particularly the smaller operators – would have to merge with larger players to survive strict oversight by the Bank of Jamaica, BOJ, effective August 1.
Feedback from the two associations that speak on behalf of microlenders is that the majority, if not all, of their registered members have applied to the central bank for a licence to formally operate in the sector.
The deadline for applications closed just a week ago, but the BOJ has not yet said just how many applications they have received from the industry, which is said to have an estimated 200 payday lenders, less than half of which are registered with any of the two associations.
So far, listed company Access Financial Services Limited is the only microfinancing firm known to have declared success in gaining approval from the central bank.
Blossom O’Meally-Nelson, chairman of the Jamaica Association for Micro Financing, also known as JamFin, believes that the majority of the players have strengthened their operations enough to get the green light from the BOJ, but aside from the work required to maintain their licences, the JamFin chairman says new challenges lie ahead for the sector.
The concerns are a mix of internal and external ones, extending from the need for greater guidance from the BOJ on procedures for winding down operations if an application is not approved, understanding the steps for mergers and acquisition going forward, to the redesign of loan products and marketing strategy so as to maintain client base in the new financial landscape.
The worry, O’Meally-Nelson says, is that microlenders or MFIs will not only be competing among themselves in the new financial landscape, but will also face heavy competition from commercial banks tnat have been keeping watch on the microfinance market.
The pool of clients microlenders served prior to oversight by the BOJ, will also dwindle, pending more microlenders familiarising themselves with regulations in order to comply with anti-money laundering rules and laws such as the Proceeds of Crime Act.
“The banks have now developed tantalising small-loan products which are very attractive to the traditional microfinance client, and so the MFIs have to get into planning mode to modernise not just their loan offerings, but their internal processes,” she said.
COMPETITIVE INTEREST RATES
Jamaica’s largest bank, National Commercial Bank, has been chipping at the market since 2018 when it introduced a PayAdvance loan on its digital platform which has no interest charge attached but comes with a monthly flat fee and is repayable in a month. The bank lends up to $300,000 in unsecured loans to customers through its mobile app at what it describes as competitive interest rates.
However, the rates charged by microlenders, pre-BOJ oversight, have been substantially higher than bank credit, reaching 70 per cent and beyond. Banks lend at rates that currently average 20 per cent for the most expensive loans, that is, consumer credit.
“I don’t see how we can operate going forward without a fair amount of digitisation, both for internal processes such as loan management and compliance and in how we process loans. The banks are working to make their loan process seamless, and so we have to respond, and that may mean more flexible interest rates and the inclusion of moratoriums as part of the repayment plans,” O’Meally-Nelson said.
To assist microlenders overcome the challenges in the marketplace, she said JamFin is positioning itself to assist its members with consultancy and training services in collaboration with the Caribbean Institute of Microfinance and Business.
The association is looking to get its members into year-long courses which O’Meally-Nelson says will assist microlenders in modernising products and procedures, marketing and advertising strategies, as well as training geared specifically at understanding the Proceeds of Crime Act.