Many years ago, I decided to start a little revolving loan scheme for micro entrepreneurs. I had access to some extra funds and thought that it would be a great idea to help a few business owners expand their operations with small disbursements. With my usual enthusiasm, I found a few persons who needed these services and my new venture was underway.
At first, the results were encouraging. A seamstress was able to purchase raw material for a large corporate order; a small wholesale owner was able to obtain another deep freeze for his establishment; a network marketer was able to purchase a large amount of products for sale to her customers. They all paid back their loans on time and I was buoyed by my early success.
However, some of the other loan recipients did not have similar outcomes. Although they had submitted proposals for how the money could help their business growth, it seemed that most of the funds went to either prop up their budget deficits or pay off old loans. Consequently, several persons found it difficult to maintain payments or kept coming back for more loans.
Although I thought I was helping these persons, I realised that I was only enabling them to dig themselves deeper in debt. Without a system that allowed them to address the root causes of their financial issues, my loan assistance was doomed for failure. In the end, I zeroed out the interest for those who were in difficulties and wrote off loans for the worst cases.
Our debt is growing
In recent times, I have been noticing with dismay the rapid increase in micro lending institutions in Jamaica. It is probably the fastest growth business in the country today. In difficult economic times, people will gravitate towards loans to solve their money problems. However, as my regular readers will know, borrowing to fill a budget gap will eventually lead to financial disaster.
I have had considerable experience of both sides of the debt fence. Previously, I have revealed that for many years I was a serial borrower, depending on credit in various forms to finance my frivolous lifestyle. Fortunately, after getting a job at a financial institution, I learned the steps to financial success; and now I advise others on the importance of practising these principles.
There is an escalating number of debt-distressed persons who have appealed to me for help. I have seen employees so crippled by multiple loans, that their take-home pay is less than $3,000. I have seen middle-income workers unable to buy gas or pay bus fare to get to work. I have seen proud Jamaican people who cannot get food and basic necessities for their families.
The business of debt
On the other side of the coin, I see many loan agencies making great returns from their services. I see many bailiff operators getting great business to pursue the delinquent borrowers. I see many investors receiving great deals on foreclosed properties. While some are profiting from people's pain, I am greatly disturbed by the financial powder keg waiting to explode in this country.
There doesn't seem to be any procedure or regulation governing some of these money- lending practices. In years gone by, you would be denied a new loan if your total indebtedness was more than 30 per cent of your salary. Now, it seems that as long as you have enough money left from your salary to service a new loan, you will be approved.
When distressed borrowers ask for assistance at their loan agencies, they are often treated with disdain. I have heard shocking stories from persons who were welcomed to take a loan but ridiculed when they couldn't meet payments. "We can't help, you are toxic", "It did 'sweet' you when you got the loan, so just pay up now", are a few of the harsh comments reported.
No support for the indebted?
I believe that many money lenders are overwhelmed with the extent of the debt problems they see daily. Their job is not to advise indebted people, but to extend loans and ensure that the payments are collected. So, where will these debt-burdened people turn for assistance? Is the Office of the Trustee of Bankruptcy equipped to handle this growing epidemic of insolvency?
I have seen another worrying practice of financial institutions keeping sensitive information on loan applicants who are declined. Are there any privacy laws that can prevent banks from scanning confidential details of persons, who may not be their customers, into their general database? How will the impending credit bureau activities affect people's future financial viability?
Then there is the issue of how the agents who handle bad loans carry out their operations. In the United States, there are laws that govern when and how bailiffs can approach indebted people. In Jamaica, there seems to be no restriction; to get loans repaid, bailiffs will telephone at midnight, call people at their workplaces, make intimidating threats and generally bring more distress.
How can we as a nation deal with this massive debt problem? Next week, I will give you some ideas how we can control this crisis.
Cherryl is a money coach, business mentor and founder of Financially S.M.A.R.T. Services. Her upcoming book, The 3 Ms of Money will reveal all the secrets she learned about financial success. Get more tips on money and business matters at www.financiallysmartadvice.com and www.entrepreneursinjamaica.com. E-mail comments to email@example.com.