Minister of Finance Audley Shaw has disclosed that at least one commercial bank has threatened to close the accounts of some microfinance institutions on the grounds that the entities are not operating under a regulated sector.

Shaw, who was speaking at the Development Bank of Jamaica’s Financial Empowerment and Technological Awareness launch aimed at promoting financial inclusion in Jamaica, told the audience that the microfinance institutions, including some registered under the Jamaica Micro Financing Association Limited (JaMFA), were given 30 days to provide documents showing that the sector is being regulated or have their accounts closed.

“We have to be working with them but we have to speed up the Microcredit Act, which will bring the sector under closer scrutiny. I think that if we do that, then the commercial banks will look more favourably at keeping them open,” Shaw told the Jamaica Observer.

Earlier this year, the Jamaica Association of Micro Financing (JAMFIN) reportedly stated that it sees the de-risking policy being pursued by local commercial banks as a threat to bona fide microfinance companies that have been in business for years and have substantial lending portfolios.

Nonetheless, under the policy, commercial banks across the Caribbean have been closing the accounts of cambios, remittance companies and now microfinance companies. The banks maintain that such institutions are high-risk operations that open the banks up to substantial fines from regulators should there be any breach of anti-money laundering laws or laws against the financing of terrorism.

According to Shaw, the Microcredit Act is now with the chief parliamentary counsel and should be tabled in Parliament shortly. The minister also informed that consultation on the Act was held with JAMFIN, and feedback has also been given by Bank of Jamaica (BOJ).

“I’ve given the commitment to speed up the process, and after that I must ensure that we get credit to our entrepreneurs at attractive rates. You can’t have a productive enterprise paying 30 and 40 per cent to anybody, so I have to get everybody’s psychology down into single-digit interest rates for productive entities. If you have a buy-and-sell operation, then make it double digit, up to 15 per cent; but 30 or 40 per cent is just crazy, it cannot work,” he told the Business Observer.

Executive director of JaMFA, Raymond Gabbidon, notes that while the Microcredit Act is needed to provide legislation to the sector, he is insisting that it not be rushed since the sector is just getting a chance to review the third draft.

“JaMFA just got a copy of the Bill about two weeks ago and we have circulated it to our members. And we are putting in place a special general council meeting in October and in November, we will be having a national conference where we want to invite the wider microfinance sector to have a look at the Bill,” he said. “We don’t want comments from the JaMFA, we want to have comments from the entire sector. After these two levels of consultation, then we will support it going to Parliament.”

He added that discussions have already taken place with the bank, which agreed to put on hold the closure of the accounts pending the passing of the Act.

“But what we have done as an organisation is to look at guidelines from the BOJ that came out for commercial banks, credit unions and building societies, and what we did was extrapolate some of those regulations we think that the sector could live with.”

Gabbidon told the Jamaica Observer that the association is now asking its members to voluntarily abide by these guidelines, one of which includes the putting together of a compliance department through which severe actions will be taken against members who disregard the rules.

“Every single member of JaMFA must have, by the middle of March, a compliance department, and JaMFA will be conducting audits from a recognised, independent auditor yearly to ensure that these microfinance companies are living up — especially to the know your customer issues and know your customer’s customer in some cases.

“We will be employing a consultant who will be putting together a compliance manual, and at a special general meeting we are going to be moving the resolution to have that embedded in our by-laws as part of the code of conduct. Then we will be requiring all our member companies to have their boards pass the necessary resolutions at board level to ensure that they adopt these standards,” he said.