LEADERS from some of Jamaica's business lobby groups, in particular, those representing micro, small and medium-sized enterprises (MSMEs), have questioned the Government's rationale for its proposal to merge the operations of the Development Bank of Jamaica and the National Export-Import Bank of Jamaica (Exim Bank) with some chiding the Government for what they say is a "bad move".
However, not much information about the merger has been released to the public since Minister of Industry, Investment and Commerce Senator Aubyn Hill — under whose oversight the bank falls — announced the plan in June.
Still, president of the Jamaica Manufacturers and Exporters Association (JMEA) John Mahfood has indicated that the proposed merger of the two State-run financial institutions is "a very big concern for us at the JMEA", though admitting that the organisation does not have enough information about what is planned.
Speaking to reporters at a recent Jamaica Observer Business Forum, Mahfood noted, "The two organisations have a different focus and so we want to ensure that in the strategy, that we understand the purpose of the merger and how it will benefit small manufacturers in Jamaica.
"We know that Exim is underfunded but will that be solved by this merger? Or is it going to be subsumed into a bigger organisation?" he questioned further.
The JMEA president suggested that the merger could be part of Government's public sector transformation initiative which aims to improve the efficiencies of government ministries, agencies and departments while improving service delivery to the public. Under the programme the Government has also implemented its Public Sector Master Rationalisation Plan which has resulted in the divestment, closure and merger of a number of public bodies.
Mahfood told Business Observer that the JMEA will be having discussions with representatives from the Ministry of Industry, Investment and Commerce to "understand the absolute plan".
"It is a very complicated situation but we have a vested interest in ensuring that this organisation [Exim Bank] survives in whatever form and is able to operate and have its focus continued," he added.
Executive director of JMEA Kamesha Blake had first raised concern about the merger of the DBJ and Exim Bank in September at the launch of the JMEA E-Commerce Funder, where permanent secretary in the Ministry of Industry, Investment and Commerce Sancia Bennet Templar was in attendance. Blake argued then that there is a need for both institutions and asked for the JMEA to be engaged before a final decision is reached.
In response to Blake's comment, Bennett Templar noted, "We want to assure all that the Government is very cognisant of the need to support small businesses, very cognisant of the need to support the productive sector and all actions or any action taken will be taken within the context of that understanding."
At another Jamaica Observer Business Forum with representatives of the MSME subsector, president of the Young Entrepreneurs Association of Jamaica Cordell Williams-Graham noted that, like Mahfood, "I'm not sure if I fully understand what the merger will entail, but by the looks of it, it's a bad move."
While she presumed that the move will make the banking sector "the central go-to for funding", she also pointed out that small business owners were already having challenges with accessing finance from DBJ's approved financial institutions (AFIs).
President of the MSME Alliance Donovan Wignall concurred with Williams-Graham.
"The Exim Bank is a direct lending institution…To take out an institution that lends directly to the [MSME] sector and subsume it with the DBJ, which goes through AFIs, at any stretch of the imagination cannot be good for SMEs," he told Jamaica Observer reporters.
To this end, he pointed out that MSMEs faced strictures that "precluded or prevented" them from accessing loan financing from AFIs such as banks, credit unions and microfinancing institutions. Wignall noted further that the know-your-customer requirements were among the most tedious.
On the other hand, he argued that since the Exim Bank is a development bank, the parameters for accessing loans from it would be more facilitatory.
"The banks in their construct are really profit-making institutions…So [for] every single loan that comes from the DBJ into the banking sector, a fee is charged and not just a fee, but significant fees are charged to execute that loan," the MSME Alliance president explained.
"I think that what should happen is that the Exim Bank…should have been the institution through which the DBJ channels — or pushes small businesses to get a loan," he continued.
According to the DBJ's website, through the Credit Enhancement Facility created in 2009, the bank aims to increase the number of small and medium-sized enterprises that access credit by providing AFI with additional collateral coverage on loans made to SMEs.
On the other hand, the Exim Bank's mandate is to provide trade financing to companies engaged in the export of goods as well as those importing commodities for inputs into manufacturing.
When Business Observer reached out yesterday to Keith Duncan, president of the Private Sector Organisation of Jamaica, for a comment, he reasoned that mergers always create efficiencies since there could be overlaps in the products and services. As such, he argued merging both entities could seamlessly streamline products and service delivery.
"The risk is that relationships that have been developed with the two entities are impacted negatively. Therefore, in the merger process while efficiencies in the delivery of services are realised, the value proposition and relationships must be maintained in the new merged entity," he continued.