JAMAICA’S central bank and business financing institutions moved to calm concerns about a potential pullback in lending to microbusiness owners and self-employed individuals, saying there is no evidence of a slowdown.

The Bank of Jamaica (BOJ) and the Development Bank of Jamaica (DBJ) insist that while some microfinance institutions (MFIs) have adjusted their lending practices in response to COVID-19’s financial aftershocks, the overall market remains strong and stable.

In response to queries from the Jamaica Observer following reports that at least two MFIs — Lasco Microfinance Limited and Micro-Financing Solutions Limited, now Monolith Financial Services — had scaled back or outright exited the microloan business, both institutions pointed to opposite trends in their data.

The DBJ highlighted a surge in loan facilitation, disbursing $2.87 billion to 7,347 micro-entities since April 2024 — more than triple the $882 million issued during the corresponding period the previous year.

“We have seen a rebound in credit take-up within DBJ-accredited MFIs since the pandemic, and we are of the view that this trajectory will continue,” DBJ Acting General Manager – Channels, Relationships and Marketing Paul Chin said.

Meanwhile, the BOJ reported that at the end of 2024, the aggregated loan portfolio of microcredit licensees stood at approximately $49 billion, with personal loans making up over 75 per cent of total lending.

“There is no indication that microfinance institutions, as a broad group, are reducing their exposure to self-employed persons,” the BOJ stated. The regulator reiterated its commitment to financial inclusion and continued monitoring of the sector.

Access to credit has tightened, with some MFIs shifting toward lower-risk, structured businesses rather than traditional microborrowers. While the BOJ and DBJ acknowledge market adjustments, they maintain that these changes do not currently threaten Jamaica’s financial inclusion progress.

“We will continue to monitor developments in the microcredit sector and provide consumers with relevant information to ensure that the sector remains prudentially sound,” the BOJ told BusinessWeek.

Still, entrepreneurs argue that the numbers don’t paint the full picture of what’s happening on the ground.

Anecdotal evidence suggests that more microbusiness owners and self-employed individuals are turning to community partner schemes and round robins to fund personal and business goals, ultimately challenging the Government’s efforts to broaden access to formal financing across all sectors of society.

One of the core issues, according to Young Entrepreneurs Association of Jamaica President Cordell Williams-Graham, may be linked to limited efforts by financial institutions to assist borrowers in developing stronger repayment habits. While the Association is primarily made up of small entreprenuers, Williams-Graham there are there are valuable lessons micro-entrepreneurs can adopt to help them transition to the small business level.

“These are the same people doing the round robins, and they make their payments on time. So why is it that MFIs are having this challenge? Maybe it’s a case where they need to develop a deeper relationship with their clients,” she said. “This could mean working with associations like the YEA to provide financial literacy training and setting up support systems that improve repayment culture.”

Williams-Graham added that MFIs could also go beyond assessing risk based solely on credit scores and explore innovative ways to structure financing for micro-entrepreneurs and the self-employed.

The shift in lending trends is being largely attributed to the economic fallout of COVID-19. Many MFIs struggled with high default rates during and after the pandemic, forcing them to tighten risk controls. Some have shifted toward serving more structured small businesses rather than micro-entrepreneurs, who are often perceived as higher-risk borrowers.

“It can’t work. These borrowers do not have assets, and hence when their source of income was suspended by the pandemic, they were never able to recover in order to pay their past debt or create a new business for the future. They could not manage, and therefore we were left with a highly delinquent portfolio,” Jacinth Hall-Tracey, managing director of Lasco Financial Services, the parent company of Lasco Microfinance Limited, said last year.

Despite concerns over high delinquency rates, the BOJ maintains that delinquency remains within industry benchmarks and does not pose a risk to the financial sector.

“Microcredit sector loans account for approximately 2 per cent of total financial sector assets. Accordingly, a shift in delinquency in this segment is unlikely to pose a systemic risk to the market,” the BOJ stated.

While the BOJ and DBJ see no immediate widespread issues, Williams-Graham warns that if more private MFIs become selective, some micro-entrepreneurs may be forced to turn to alternative, informal lending sources — including high-interest, unregulated lenders.

“This is the gap that concerns us,” she said. “If people lose faith in the formal system, they will find other ways to borrow — ways that may not have the same consumer protections.”

For now, the BOJ contends that there is no evidence of an exodus toward informal lending.

“The Bank has no evidence to suggest that borrowers are turning to informal or unregulated lenders,” it said.

Meanwhile, the DBJ, which brands itself as “the business builder”, says it continues to provide critical support for microfinance institutions to ensure they remain viable in the evolving financial landscape. The bank says it facilitates access to wholesale funding for accredited MFIs, allowing them to on-lend to micro and small businesses.

Additionally, the DBJ offers technical assistance programmes aimed at strengthening the capacity of MFIs, ensuring they can better manage risks and expand their reach to underserved borrowers. While it has introduced incentives in the past to stimulate lending, the DBJ says it is constantly assessing the economic landscape to determine where new interventions may be needed.