The United Nations (UN) has declared 2005 'The International Year of Micro Credit' and as part of its mandate, calls for "strengthening the powerful, but often untapped, entrepreneurial spirit existing in impoverished communities".

The aims of the UN's proclamation have far-reaching implications for the micro-financing sector; namely, to increase public awareness and understanding of micro-credit and micro-financing, and to enhance the effectiveness of micro-credit and micro-financing organisations.

Pros and cons

Lending rates in the micro-financing sector tend to run high, and can range between 30 per cent - 60 per cent per annum. However, micro-financing does not carry the weight of added costs like stamp duties and other processing, insurance and commitment fees, which is standard for lenders in the banking sector. These fees can add up quickly, sometimes as much as five per cent of the loan amount, and are usually required upfront before the loan is disbursed.

Assistance available

Jamaica has bought into the UN initiative and industry leaders such as the Jamaica Business Development Centre (JBDC), the National Development Foundation of Jamaica (NDFJ), and the Small Business Association of Jamaica (SBAJ) are promoting the role micro-financing can play in enhancing Jamaica's small business development.

There are a number of micro credit companies operating in Jamaica; among them, the following providers and their industry perspectives:
Access Financial Services Ltd operates a micro-financing company for small business persons unable to access credit to grow their businesses.

Owner Marcus James offers advice to small business owners, and is able to provide clients with easy loan access at a reasonable rate - one per cent per week. Loan requirements include background information on the business to be financed, character references for the business owner, and a few additional compliance requirements.

The National Development Foundation of Jamaica (NDFJ) was established in 1981, and as one of the longest-serving micro-financing providers, Credit Manager Keith Byfield credits business development training and technical assistance as strong value-added to NDFJ's financing services.

Criteria is similar and financing costs range around five per cent per month on micro loans, while monitoring is carried out to mitigate business failures.

JN Small Business Loans (JNSBL) is now involved in micro-financing and according to Marketing Manager Neville Madden, JNSBL is doing its part in developing the sector for small businesses in Jamaica, and offers a top-up loan for existing clients who want to take advantage of seasonal business opportunities requiring heavy stock.

Training in management, customer service and bookkeeping are services also available at no extra cost. Maximum loan amount is $300,000 ($50,000 for first-time borrowers). Payback rate is one per cent per week.

Micro Enterprise Financing Limited (MEFL), sponsored by the Bank of Nova Scotia Jamaica (BNSJ), the Canadian International Development Agency (CIDA) and the Kingston Restoration Company (KRC), is a model micro-credit company for low-income micro entrepreneurial communities with little or no collateral.

The programme is tailored to small clusters -hairdressing and small shops, for example - with shared accountability for shared rewards. Borrowers pay back at a rate of 1% per week, but can negotiate a reduced rate if the repayment record has been good. Again, training is an integral part of the MEFL loan programme.

The good news is that micro entrepreneurs seeking financing help have a variety of lending organisations to choose from, and each offers its own value-added.

However, interest rates in the sector are still too high, and it is hoped that the UN's International Year of Micro Credit will result in wider accessibility to interest-friendly loans at reduced rates.

Other forms of lower rate credit are available as well, including credit facilities that allow the borrower to access loans based on a percentage of their investment or savings - used to collateralise the loan and eliminating processing and commitment fees.

These facilities are more common in the securities industry and borrowers tend to be large savers; but they can access loans in US dollar terms for as low as 11 per cent per annum, that is, less than one per cent per month.

Pamela Lewis-Chambers is an account executive with Sterling Asset Management Limited. Sterling provides medium-to-long-term financial advice and instruments in Jamaican, US and other world market currencies to the corporate, individual and institutional investor. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm

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