Hylton wants 'properly crafted' Microcredit Bill

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Hylton wants 'properly crafted' Microcredit Bill

Thursday, December 05, 2019

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RECENTLY appointed Opposition spokesman on industry, investment and competitiveness Anthony Hylton says a properly crafted legislative environment for micro, small and medium-sized enterprises (MSMEs) would greatly contribute to Jamaica's growth agenda.

But, he told micro-financiers at their Annual Microfinance Sector Leadership Forum and Breakfast Meeting at Jamaica Pegasus last week Wednesday, that, in order to address the issues delaying the passage of the Bill in the House of Representatives, there is a need to recognise the concerns raised by the major bodies representing microfinanciers — the Jamaica Micro Finance Association (JaMFA) and the Jamaica Association for Micro Financing (JAMFIN), which jointly hosted the event.

“A regulated environment is a step forward to bring about order in the microfinance environment, and to ultimately improve access to financing by the micro, small and medium-sized enterprises, and businesses, in general,” Hylton, a former minister of industry and commerce, said.

However, he said that while access to financing has been highlighted by the MSME and Entrepreneurship Policy as one of the major challenges facing MSMEs, “no doubt, a properly crafted legislative environment will greatly contribute towards the broader goals and objectives of the country's growth agenda”.

“We need to recognise, and broadly share, the concerns expressed by the JaMFA/JAMFIN Joint Advocacy Committee regarding the Microcredit Bill 2019 in their report to the Parliament,” Hylton insisted.

He noted that the report highlighted the sections of the Bill that are regarded as potentially damaging to the sector, if enacted as law.

“One observation in the report is that the Bill proceeds from a position which reflects a deposit-taking industry, rather than a sector where all players are largely self-funded. Another major concern is that the Bill contains elements that makes it largely anti-competitive, thereby undermining greater efficiency and better benefits to the consumers.

“Undoubtedly, there is broad agreement that the Bill is penal in character, and inimical to the development of a competitive and efficient microfinance sector,” Hylton noted.

He said that, the concerns, among others raised by the bodies, include:

• The penal character of the Bill, which derives from over 40 new offences;

• The Bill's silence on funding arrangements that licensees are permitted to enter into;

• The Bill is invasive and calls for Bank of Jamaica (BOJ) approval (or non-objection) prior to a licensee being allowed to move its principal office, open a new branch, alter existing articles, or change its name;

• The Bill is restrictive in nature, as a licensee is only permitted to provide loans and business/personal financial advice, and no other business activity, such as asset-based lending is permitted;

• Licensees are required to ensure that its substantial shareholders and officers meet fit and proper requirements; failure to do so is a criminal offence;

• Loans to companies are prohibited, as the Bill disqualifies loans that are not defined as “microcredit services”;

• The Bill requires that the accounts of a licensee, which is a “small company” (as defined by the Bill), must be prepared by an external auditor, imposing costs on the licensee. Failure to submit audited accounts to the BOJ, within 90 days of the financial year, is a criminal offence;

• Requires cash collateral for loans to be held in an escrow account by a deposit-taking institution;

• Interest rate cap-setting with mandatory linking of interest rates on loans to the Government of Jamaica T-Bill rate. The parameters of the linking are not specified;

• The Bill requires interest to be calculated on the outstanding balance of the loan. But standard amortisation of loans into equal periodic front-end interest payments, rather than charging interest on the reducing balance.

“We must make sure that obstacles to the development of the sector are removed and that the framework, which the Bill seeks to implement, enhances the operation of the sector,” Hylton stated.

“A properly designed legal environment must be carefully thought through, if it is to support the growth and development of the microfinance sector. Again, the importance of implementing an officially recognised regime for the orderly development of the microfinance sector cannot be overemphasised,” he concluded.

JaMFA and JAMFIN have aligned themselves in an attempt to have those areas addressed by the Ministry of Finance and the Public Service.

Earlier this year, JAMFIN's chairperson Dr Blossom O'Meally-Nelson accused the Government of largely ignoring the proposals put forward by her association for incorporation into the Bill.

She also accused the Government of attempting to rein in the microcredit sector, which she suggested was the only growth area that they have a problem with, by claiming that it is “in an effort to protect consumers”.

Minister of Finance and the Public Service Dr Nigel Clarke has since confirmed that amendments are being made to the Microcredit Bill. Subsequent to the passage of the Bill, BOJ will be implementing new rules for the operations of microfinance firms. The Consumer Affairs Commission will also issue a code of conduct to include the use of clear and simple language in loan agreements.

Acting chairman of JaMFA, Andrew Mais, has also confirmed that the minister is in dialogue with the association and has responded favourably to a number of amendments they have suggested.

He said that he is optimistic that the process will be completed, and that significant portions, if not all the recommendations, will be adopted.

— Balford Henry


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