Jamaica's microfinan-ciers apply too big a price to the credit they issue to borrowers, according to Finance Minister Audley Shaw, who on Wednesday, said they should cut rates or get left behind holding their cash while the productive sectors seek viable financing elsewhere.

Micro-financing agencies, which take greater risks, typically price their loans at one per cent and two per cent per week, which works out, Shaw pointed out, to 52-100 per cent interest per year, depending on how the loan was structured

In the broader market, however, the cost of capital is averaging 13 per cent but loans also range beyond 20 per cent.

"While there is a place for it (short-term, high-cost loans), there is a certain type of enterprise that will exclude itself from such loans. It excludes critical areas of the productive sector that might ultimately form an important part of the restructured economy."

rates not sustainable

Ultimately, the finance minister said, as he addressed the launch of the new Jamaica Micro-financiers Association Limited (JaMFA), such rates were not sustainable for entities that wish to grow.

The executives of JaMFA - an entity launched to change the image and conduct of moneylenders - said they were already alert to the possibilities, and said the high rates quoted throughout the sector were under self-examination.

JaMFA chairman Hurshell Cyrus said the association, whose secretariat is located on the Scotiabank building at Oxford Road in New Kingston, had invested in a searchable database for Jamaican borrowers which can be used by its members and others to keep track of clients and the collateral they use for loans.

If the database, as is expected, helps to detect and weed out those borrowers who show up at different loan agencies with the same collateral for loans, and helps to arrest delinquencies, it will have implications for lowering the price that moneylenders put on credit, according to Cyrus.

The high interest rates charged, Cyrus said, was the method used by lenders to protect themselves from the risk attached to loans, which were often made without the kind of collateral demanded by banks.

The new system being developed by JaMFA, he added, would also be open for registration to individuals who wished to list themselves as clients in good standing with lending organisations and so increase their access to credit.

Shaw said at the JaMFA launch that regulatory changes, which would affect the sector, were under review and not far from being debated into law.

Responding as well to the statement by Cyrus that the microfinancing sector needed greater funds from multilateral lending agencies, which could be on-lent at cheaper rates, the minister said that the Development Bank of Jamaica was poised to release another $1 billion for on-lending to the micro sector.

low-cost loans

Cyrus, who applauded the move by Scotiabank and National Commercial Bank to offer $1.5 billion cumulatively at under 10 per cent interest said that, by his calculations, no more than 2,000 Jamaicans would benefit from the loans.

In contrast, he said, the micro-finance sector was managing loans of $50,000 upwards issued to more than 1,000 clients monthly. And banks were asking for full collateral for low-cost loans while microfinance entities used much more flexible terms.

JaMFA's other mission, Cyrus said, was to be recognised by both private and public employers who often refused to permit loan repayments by way of salary deduction.

avia.collinder@gleanerjm.com