Gov't Considering Longer Loan Repayments for small businesses

Friday, December 03, 2010

Government is exploring how it can extend the repayment period for loans granted to the micro and small business sector to give businesses more room to grow.

Prime Minister Bruce Golding made the announcement at the Jamaica National Small Business Loans Limited Annual Board Directors' Luncheon and Tour at the Jamaica Conference Centre recently, noting that the move was being considered as a complement to JNSBL's existing programmes which are geared at developing the sector.

Prime Minister Golding said that if small businesses were given more time to repay loans they could engage in economic activities that generate more value-added products.

"The truth of the matter is that the shorter the period for which you can borrow, is the less scope and room you have to add value," he said.

"When you borrow on the short end for just a couple of weeks it means that whatever you are doing you have to do it quickly and you have to turn it over quickly or else you can't meet your obligations, and there are some things that require the adding of value that necessitate much more space and time."

However, he noted that an extension of the loan repayment period would have to be explored within the broader context of engaging small and micro entrepreneurs who have no collateral to secure funding.

Prime Minister Golding said the Government is looking at how legislation can be amended to include non-traditional forms of collateral to secure loans. He noted that the establishment of the Credit Bureau could play an important part in this regard as credit reports could be used, in addition to other assets, to collateralize funding.

"It could be in the future when you walk into a financial institution you are not talking out of your hand bag or briefcase to put on the table. You are taking out your credit rating and saying: 'Here, I'm a person with a good credit rating," he said.

"It is going to be saying a lot to that banker that this is somebody who I can lend money to because this is somebody who will pay back the money."

Mr. Golding said the Government will provide $300 million more in funding to micro entrepreneurs who want to establish businesses but do not have the necessary collateral to secure funding. This will be in addition to $150 million it disbursed for similar purposes earlier this year.

He said the funds will be made available through the Development Bank of Jamaica, which will on lend the funds to the Jamaica Business Development Corporation for disbursement.

"Let us not look at the collateral because they have none, but look at the idea they have and pierce through their brains to see how serious is this person and how committed they are," Mr. Golding told the audience at the luncheon.

Mr. Golding said while the delinquency rate on the funds disbursed so far was slightly above average, the government was satisfied with the performance of the facility and would therefore input another $300 million for lending to the sector.

He said the new funding being made available will be in addition to a credit enhancement facility being established by the DBJ. The facility will see the government absorbing half the risk to secure the loans being granted to micro enterprises.

Earl Jarrett, General Manager of the Jamaica National Building Society, the parent company of the JNSBL, welcomed the initiatives and said the plans would bolster the development of the small and micro enterprise.

"We believe the initiatives are important to the survival of the sector," he said "and we would like to introduce several more."

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Gov't Considering Longer Loan Repayments for small businesses