AFTER years of discussions the Micro Credit Act, 2021, which aims to license and regulate microcredit institutions that provide financing to individuals as well as micro, small and medium-size enterprises (MSMEs), was passed in the Senate recently and now awaits the completion of the necessary processes before becoming law.

This piece of legislation, which will impact how the sector operates, seeks to, among other things: discourage microcredit institutions from lending money at excessive interest rates that are not justified by the risk; outlaw predatory lending practices, threats, and intimidation; promote greater transparency and disclosure of pricing and terms of products; and reduce the risk of the industry being used to facilitate money laundering.

The Act also allows for the creation of a regulator to monitor the sector and ensure good business practices.

Importantly, the legislation, welcomed by the microfinance institutions (MFIs), seeks to strengthen the sector, improving the long-term sustainability of the players and the industry itself. Positioned as a game-changer the industry, it is poised to attract even more players, driving the sole mission of providing greater access to credit for underserved segments and supporting Jamaica’s national financial inclusion strategy.

The impending regulations may result in consolidation within the industry as different players strengthen their systems and structures to deliver more efficiently while meeting the regulatory requirements.

The ongoing challenges posed by the coronavirus pandemic are also forcing microfinance institutions to rethink how services are provided, incorporating the opportunities the digital space presents.

There are several views on the Act, with some expecting a fallout in the microfinance space but reminding us that much has been invested in providing the service, many have been impacted, and the quality of life of thousands of Jamaicans improved.

At present, microfinance institutions lend to thousands of people who seeking access to credit to invest in business opportunities, create employment and advance their personal lives to include investment in education.

Therefore, improving the financial ecosystem used to power our MSMEs and provide financing for every Jamaican remains critical. While there is a tendency to paint all MFIs with one brush, let’s remember microlenders are a diverse group of companies that contribute to the economy through job creation and improvement in livelihood, both directly and indirectly.

In addition, MFIs provide direct employment — engaging with relationship officers, administrators and persons in other roles to ensure that their operations are run efficiently.

Structures have been built to support strong Know Your Customer (KYC) and Know Your Employee (KYE) principles. The stakeholder relationships built with entities such as the Development Bank of Jamaica, EXIM Bank, Tourism Enhancement Fund have been important to extending credit to farmers, manufacturers, members of the tourism sector and other industries, whilst our international stakeholder relationships with USAID and IDB have also garnered much fruit for the MSME sector.

The USAID’s guarantee programme has allowed us to reach more at-risk groups and more recently, IDB’s Pilot Programme for Climate Resilience financed the implementation of several projects in the tourism and agriculture sectors to build resilience against climate change.

It is therefore our hope that this sector, which faces a new dawn, will be powered within a regulatory framework which attracts even more local and international funding, delivering on even more creative options for all Jamaicans to gain access to affordable and flexible credit, to further position Jamaica on a path to sustainable social and economic growth.

Gillian Hyde is the general manager of Jamaica National Small Business Loans Ltd.