The Bank of Jamaica (BOJ) has approved McKayla Financial Services Limited and ISP Finance Services Limited as the latest microcredit firms to be licensed under the new Microcredit Act, 2021 in the $40-billion industry.

Both firms were approved last week, increasing the number of approved entities to 19. Meanwhile, 79 firms continue to operate under regulatory forbearance or non-objection letters pending the processing of their application from the new regulator. This is against the backdrop of the BOJ having received 136 microcredit applications and nearly a year after the July 2022 deadline for firms to apply for their licence to continue operating.

“I am feeling very grateful and we’re happy to have gone through the process of licensing. We have always advocated this is the way to go under a regulatory framework,” co-founder and chief executive officer of ISP Dennis Smith told Jamaica Observer last Friday.

ISP listed on the Junior Market of the Jamaica Stock Exchange (JSE) in March 2016 and reported $1.05 billion in total assets at the end of 2022 with shareholders equity of $520.77 million. The company generated $393.27 million in operating income and $57.64 million in net profit for the period.

McKayla’s approval comes immediately after Supreme Ventures Limited (SVL) spent $68 million last quarter to acquire the remaining 44 per cent in the microcredit firm. SVL also acquired a 15 per cent stake in Dolla Financial Services Limited last Monday.

McKayla generated $82.45 million in revenue last year, but incurred a net loss of $19.19 million. Total assets stood at $285.67 million with $104.01 million in net assets.

These approvals mean that almost every JSE-listed microcredit company, its subsidiary or associate has been approved by the BOJ in the last year. These include Access Financial Services Limited (AFS), Dolla Financial Services, Eppley Consumer Finance Limited, and the two latest firms. Only Lasco Microfinance Limited, a subsidiary of Lasco Financial Services Limited, and NCB Capital Markets Limited associate company Mundo Finance Limited are yet to gain their licences.

There were four other approvals in the last month which included Niche Financing Limited, Real Financing & Investment Hub Limited, A & N Loan Hub Limited and The Central Cash Advance 2022 Limited. Real Financing and The Central Cash were incorporated last July and August, respectively.

On its website, A&N Loan Hub notes that it has over 5,700 customers with $821 million in loans disbursed. Niche Financing notes that the BOJ granted its licence on June 19. Prior to June 15, there were 97 applications which were still being processed.

When asked as to the rationale for the small number of approved institutions after nearly a year, BOJ Deputy Governor — Financial Institutions Supervisory Dr Jide Lewis said, “At the end of the transition period, BOJ received 108 applications, 90 per cent of which were received in the last month and 78 per cent in the final week. Additionally, in assessing the submissions made, the bank has identified gaps in the sufficiency of the information provided to conduct the assessments. In all instances, there are information gaps that must be addressed to adequately assess the application and take the appropriate licensing decisions. As the process is iterative, the bank generally provides applicants with an opportunity to address the gaps identified.”

Some successful applicants described the BOJ’s fit and proper procedure to meet the applicable requirements as quite extensive and extremely detailed.

The Microcredit Act was formed to bring more transparency to the sector, especially with regards to information provided to customers and how particular items such as interest rates are communicated and expressed. It also served as a way to ensure that Jamaica complies with the Financial Action Task Force’s requirements surrounding the regulation of different sectors including the designated non-financial businesses and professionals (DNFBPs). This resulted in all microcredit players falling under the anti-money laundering (AML), combatting the financing of terrorism (CFT) and countering the proliferation of weapons of mass destruction (CPF) legislations.

The BOJ has issued a suite of guidance in four critical areas including standard of sound practice on fit and proper assessments, minimum expectation for governance framework, and transparency of ownership and group structures. The code of conduct surrounding microcredit firms is also being reviewed by the Consumer Affairs Commission and the different microcredit associations.

“It is not the intention of the microcredit regulatory regime to limit the timelines licensees have to execute the opening of additional branches and expand into new countries, nor does it contemplate prudential supervision. With reference to Section 20 of the Act, licensees are required to notify the supervisor of their intention to establish a new branch locally or overseas. Further, where the supervisor does not object or respond within 30 days of receiving the notice, the licensee may proceed to open the proposed locations. The regime does not seek to be prohibitive to the growth of microcredit businesses,” Dr Lewis closed.