Microfinance: What the BOJ now needs to do
FOR the better part of last week, experts from all over the world exchanged experiences about innovative strategies for financing small, medium and micro enterprises.
This collective brainstorming took place at the Fifth Caribbean Microfinance Forum in Montego Bay, which was organised by the Multinational Investment Fund — kudos to Dr Winsome Leslie — and co-sponsored by the European Development Fund, Caribbean Development Bank, and CITI Foundation.
The microfinance practitioners from every corner of the globe shared experiences and innovations with senior personnel from the Inter-American Development Bank, including Zulikar Ally, executive director for the Caribbean on the board of directors. Unlike many conferences, this, thankfully, was not a "talk shop", but yielded some tangible policy recommendations.
Mr Delroy Chuck will undoubtedly be heartened by the output as last week he was, correctly, bemoaning the difficulties of businesses obtaining credit.
Small, medium and micro enterprises are important as generators of employment and as incubators for firms which eventually become large and even international in their operations. We note that all businesses, including corporate giants like Apple, started as small businesses. Indeed, some of the biggest multinational corporations were started by university dropouts in small garages.
The role of small and micro enterprises is particularly important in small developing economies where the small size of the national market limits the realisation of economies of scale. Jamaica is certainly looking to small and micro enterprises to ignite economic growth in employment, tax revenues and output.
One of the most revealing avenues for improving the efficiency of microfinance institutions is the increasing application of technology, especially the use of computers, the Internet and mobile phones. These applications have lowered the cost of transactions, increased the speed of financial transfers,and expanded the participation in numbers and geographical coverage.
For the microfinance institutions, the use of specially designed software serves to reduce portfolio risks because it enables them to collect improved data and that, in turn, improves their capacity to accurately evaluate the needs of the potential customers and service their existing clientele. Technology also allows the rapid dissemination of best practices, thereby strengthening the institutional capacity of financing institutions.
The regulatory environment in which microfinance institutions operate is a factor which impinges on the efficiency of their operations. The regulatory environment must be continually updated to ensure that it facilitates efficiency, fairness and stability.
In this regard, one of the new issues which is rapidly evolving is "mobile money" where there is an urgent need for building awareness. The Bank of Jamaica needs to do more to make the sector aware of current regulations and to consult the sector on future modifications.
We hope that the findings of this conference will be widely disseminated to microfinance institutions, regulatory institutions, development financing organisations, microenterprises, and to the public in general. There should be some follow-up in training sessions and the delivery of best practices by Internet.