Thousands of people are flocking to moneylenders each month, borrowing enough to pay bills, buy household goods, invest in their own business or bankroll their ‘hustlings’. Margaret, a supervisor with the Jamaica Urban Transit Company, has done business with two moneylenders, and is currently paying off her latest loan.

Like her, more borrowers are gravitating towards moneylenders because the loans require little or no collateral, and are disbursed quickly, often within three days – compared to banks, whose policies generally require persons to qualify for loans based on certain risk factors.

And as the moneylenders’ client base grows, so does the list of companies offering the service.

Marcus James entered the moneylending business in Kingston about five years ago. His target market, then, was small and micro businesses.

But in no time, James had established offices in three other parishes and expanded his operation to include consumer loans. He is now working on plans to take his agency Access Financial Services Limited islandwide, as he positions to grab a bigger share of what seems to be an expanding and highly-competitive market.

Visual evidence suggests that the moneylending sector has mushroomed and continues to blossom, in terms of new firms and clientele, despite the high interest rates at which some agencies lend money.

The finance ministry, specifically its Financial Regulation Division (FRD), admits to having limited information on the number of agencies and the size and value of the market.

Some of its players, however, say business is booming. “We have seen continued growth on both sides – consumer and business loans,” James told the Sunday Observer, having entered the market in 2000.

Cybersurance, which hit the market only last year and specialises in insurance premium financing, lends to an average 520 to 580 general and heath insurance clients per month.

Its loans are priced at five per cent to 10.5 per cent, depending on the life of the loan, which can run from three to nine months.

Access lends at a capped $250,000 for a maximum of one year, at rates of 25 and 38.4 per cent, depending on the loan terms.

Moneylenders, because of the heavy risk, opt for short-term exposure and so lend for periods of three to 12 months.

“It’s a thriving industry,” said Gresford Dinald, assistant credit manager for insurance premium financing at UGI Finance and Investments, owners of Cybersurance. “I think a lot more people will be getting into it.” The finance ministry prescribes the rate at which the money agencies can lend. That rate is now capped at 25 per cent per annum.

Agencies wanting to charge higher interest can apply to the ministry for an exemption. But even with the exemption, the allowance is unlikely to top 40 per cent.

“Under section three of the act, the court is empowered to presume that any interest charged over 40 per cent per annum is excessive,” said Nadine Pryce of the Financial Regulation Division (FRD) in written response to Sunday Observer queries.

The section, said Hyde, “seeks to set a standard as to what constitutes a harsh or excessively-high lending rate”.

The ministry, however, does not police the sector to ensure adherence to the minister’s prescriptions.

So, while an agency like Access – one of 20 entities that the ministry has on its records for exemptions – retails consumer loans at 25 to 38.4 per cent per year, other agencies called by Sunday Observer were quoting big pay-backs that swelled beyond the legally-allowed limits.

OBF Financing, said to be one of the earliest and surviving players in the moneylending sector, did not respond to several requests for an interview. But, a female sales agent, quoting the repayment terms on a $500,000 loan, said weekly payments would amount to $31,136.42, inclusive of principal and interest, to be paid over six months.

The agency does not quote interest rates over the phone, but assuming 24 payments over the six months, the borrower would have repaid a total of $747,200, give or take a few dollars, representing a premium of more than 49 per cent on the initial loan. On that same assumption, the per annum rate would be 98 per cent.

New Era Finance Limited lends a maximum of $300,000 on which weekly payments would amount to about $19,700 for 24 weeks, said a loan agent. Those terms would give the company a premium of 58 per cent on the loan. The assumed per annum rate: 116 per cent.

Both New Era and OBF ask for security in the form of a registered land title or car whose value is no less than three times the loan size. Other agencies, however, generally require recent pay-slips as proof of earnings and perhaps a guarantor.

The ministry does not regulate moneylenders, saying only that the law is being reviewed and that regulation “will be considered”. Its monitoring is confined to those agencies that apply for exemptions; however, corporate entities that offer moneylending products are monitored by their respective regulators.

Loan applicants who borrow above the prescribed or exempted rates do have the option of petitioning the court to have their contracts set aside or amended under the moneylending law.

Dishonest lenders or those who contravene the act can be fined $100,000 and/or sent to prison for up to one or two years.

But Jamaicans, it seems, have no aversion to borrowing high-cost money if the funds come hassle-free.

Margaret’s first loan was for $10,000, on which she repaid interest amounting to $3,700 over three months – a 37 per cent premium, which translates to about 148 per cent per year.

Her second loan of $15,000 was from a different agency, and cheaper. The interest amounted to over $5,000, approximately 33 per cent of the loan, which she paid back in four months. That loan cost 99 per cent per year.

Interest rate is really the price of a loan and the moneylending act insists that it be quoted in ‘per annum’ terms to borrowers.

But what is important to persons like Margaret is not the price they pay for the money they borrow, but whether they can afford the nominal payment quoted by the lender.

“She tell me the interest rate, but me cyan remember,” said the transport supervisor, recalling that the agency’s owner had read out the contract to her. “Is not she come to me; we went there, so I never think about it,” she said.

Her third loan, from the same agency, was for $100,000 for a year. She is now paying back that loan at 20 per cent, which puts her monthly principal and interest payments at $10,000 per month – terms that are within the legal limit.

Recognising that a vibrant market exists for non-collaterised loans, corporate entities have now been getting into the moneylending business.

UGI has entered with Cybersurance, and National Commercial Bank has introduced Payroll Plus, a non-collaterised loan priced at 22 per cent on which the turnaround time for disbursement is about 12 hours.

Payroll Plus lends up to nine times the applicant’s gross salary, and gives almost six years to repay.

A typical bank loan will range from 18 months up to five, even seven years, while prevailing rates remain above 20 per cent.

Pan Caribbean, a financial isntitution, is emerging into a big financier of moneylenders in recognition of the market’s potential, says Dinald.

James says his expansion into consumer loans was financed with a line of credit from Pan Caribbean.

His plan to expand Access Financial into an islandwide network is to position himself to compete more effectively with corporate bigwigs like Jamaica National Building Society, specifically its subsidiary JN Small Business for business loans, and NCB for personal loans.

See related article in Sunday Finance.

Money laws

The Moneylending Act was last amended in 2003. Here are some of its stipulations that are meant to protect borrowers:

. Where a moneylender sues a client for defaulting on a loan, the court may examine the terms of the loan to determine whether they were excessive.

. If the terms are ‘harsh or unconscionable’, the judge can overturn the contract and relieve the defendant of the suit.

. A loan is excessive if it exceeds the ‘prescribed rate’ which the minister of finance sets from time to time. The prescribed rate is now 25 per cent per annum.

. It is illegal to quote a compound interest rate, whether directly or indirectly.

. Loan documents must publish the interest rate, quoted per annum. Failure to do so constitutes a criminal offence, punishable by a fine of $100,000 and/or up to 12 months in prison.

. The court can also set aside the debt, whether wholly or in part, and revise the loan terms.

. Moneylenders who induce a loan contract by misrepresenting facts, concealment or other dishonest means, commit a criminal offence and face penalties of $100,000 and/or up to two years in prison if convicted by a resident magistrate.

. If requested, the lender is obliged to provide the borrower with details, in writing, on the particulars of the loan, payments made, amounts outstanding, interest accruals, a schedule of payments due and the dates they become due.

. The borrower pays a fee of $50 for the expense of supplying the statement.

. The provisions of the act do not apply to registered friendly, provident or building societies, a licensed financial institution, a licensed bank, and companies licensed under the Securities Act and Insurance Act.