An invitation to the Rotary Club of Kingston this week provided a welcome reminder of Rotarian’s four way test : Is it the truth; Is it fair to all concerned; Will it build goodwill and better friendships; Will it be beneficial to all concerned. On reflection, these are good principles not just for life, but specifically for a more positive form of journalism than we are currently seeing in Jamaica, and, the focus of this column, the critical issue of banking.

The keynote speaker of the Rotary event, Scotiagroup CEO Bruce Bowen, should be commended for outlining with unusual frankness the business model of banks, thereby satisfying the truth criterion of the four way test by engaging, as opposed to avoiding, unhappy customers. He is particularly to be commended for providing some welcome transparency on costs, unlike many other businesses operating in Jamaica, which is particularly important in any industry with monopolistic type power. In essence, he is accepting the almost inevitable role of Scotiagroup in leading the “charge” in responding to the now burning issue of the fairness of the sharp increase in bank fees, now the subject of a planned study by the Governor of the Bank of Jamaica on the instructions of Minister of Finance, Audley Shaw.

A typical viewpoint on just one of the many new or increased fees would be that of Kentucky Fried Chicken Finance Director Michelle Myers, who commenting on the issue of depositing cash, noted. “It used to be a part of a banks operating cost, and now they are forcing it onto the consumer.”

This need for this transparency, and the importance of fairness in maintaining goodwill with one’s customers in these difficult times, is particularly stark in the case of banking services provided to small businesses. In our tight economy, many small businesses are facing sales declines of up to 50 per cent. Frequently, this has been accompanied by increases in key operating costs such as electricity.

In Jamaica, the United States, and many of the other countries around the world affected by the global financial crisis, bank lending (the fuel for economic growth) is currently shrinking on a net basis after loan write offs. At a time when a small business is most in need of a “friend”, a reduction in bank lending to small business can be the difference between business failure and success.

The financing problem for small business is very clear. Banks are set up to lend on a volume basis (in the US they use credit scoring methodologies) to finance retail consumers. In Jamaica, until very recently, banks had seen sharp growth in retail consumer credit, either unsecured through credit cards (with high interest charges to compensate for loans losses) or secured e.g. with cars as collateral.

For the relatively competitive loans to larger businesses, banks can earn specific fees to cover the transaction cost of lending to larger businesses. This is because the level of work to do a large transaction is not that much more than a small transaction, but the fee will be charged on a much larger amount.

Small businesses, however, often fall through the cracks, having neither volume nor low transactions costs, even in the US This is why their Small Business Administration was created in the first place.

By US standards, virtually every business in Jamaica is small, and those that are not have access to foreign banks anyway. It is therefore beneficial to all Jamaicans that a way be found to finance small business. In a time of declining sales, without a fast reduction in our still very high interest costs, we may begin to see much wider business failure and personal bankruptcies, particularly if this is coupled with a widespread reduction in credit lines as has occurred in the US The issue of access to finance in Jamaica must now be put on the front, not back burner.

Following the greater than anticipated success of the Jamaica Debt Exchange, there was an initial bump up in the stock market, along with an improvement in business optimism as measured by the Jamaica Chamber of Commerce index. This was driven by a renewed sense that investors needed to search for new investments rather than just put money into government paper. However, this optimism seems to be in danger of stalling in the face of our still grim local economy, and an increasingly uncertain international situation. Now is the time for the government to begin a serious dialogue with the private sector as to how to raise the “animal spirits” of local Jamaican business, and provide a business environment that at minimum is also attractive for investments by Jamaican’s abroad.