Ready to roll: MFIs/DBJ now offering entertainment loans with refreshed terms
Paul Chin, manager of investor relationships at the DBJ.

THE Development Bank of Jamaica (DBJ) indicates that companies and individuals in the entertainment sector can now approach its affiliated microfinancing institutions (MFIs) for loans. This, following a revamp of loan terms.

Paul Chin, manager of investor relationships at the DBJ, on November 16 told the Jamaica Observer that the loans are available for working capital, but also for capital expenditure, to buy new computers, new sound system equipment, speakers, etc, and they also cover refinancing of debt.

First launched in August 2022, the line for the sector has seen some teething pains. The financing expert said, "We had challenges in crafting terms so they could be beneficial to all parties. The minister announced a specific interest rate, but it was difficult for microfinance institutions to on-lend funds at that rate.

"We had to have further discussions with lenders to ensure participation. We have now resolved the challenge, having come up with fresh terms. We are still in discussion with MFIs [for them to] understand what we are doing in the market and that they are fully onboard with what we are proposing."

Companies are now able to borrow up to $10 million. Chin outlined, "If you borrowed 10 million at the rate of 10 per cent borrowed for a maximum of five years, payment of $225,000 monthly." Funds are available at maximum 13 per cent but it can be lower depending on creditworthiness.

$500 million in funding

The total allocated to the sector is $500 million with a maximum loan amount of $10 million. Terms include a payment moratorium of up to three months, maximum loan tenure of five years, access to the DBJs CEF or collateral guarantee programme and rates ranging between 10 and 13 per cent.

Use of collateral is normal practice. The DBJ business unit head notes that these rates are below what is currently being offered in the general market.

To date, the DBJ has encountered 10 different types of entertainment stakeholders through its meetings with the Ministry of Entertainment and Culture which has communicated the sector's needs.

The project for the entertainment sector falls under the DBJ's microfinance lending window which was established in 2009 to coordinate all related interventions in the microfinance sector on behalf of the Government of Jamaica (GOJ).

The window aims to provide wholesale funding to accredited MFI; strengthen the institutional capacity of MFIs through the provision of technical assistance; and to increase transparency and information on the MFI sector through reporting and adherence to best practices, said Chin.

He outlined that since 2009, the development bank has been onlending funds to the microfinance sector through accredited institutions which today are Access Financial Services Limited, C&WJ Co-operative Credit Union Ltd, EduCom Co-operative Credit Union Limited, McKayla Financial Services Limited, COK Sodality Co-operative Credit Union Ltd, BULL Investments Limited, First Heritage Co-operative Credit Union Ltd, JN Bank Small Business Loans, WILCO Finance Limited, and LASCO Microfinance Limited.

The DBJ manager explained, "We wholesale funds through them and these funds are onlent to micro and small businesses primarily. The micro institutions will be asked for collateral including a variety of items from as low as furniture, motor vehicles, assignment of contract proceeds [farmers can ask for funds to be paid directly to the lender for produce] to titles and property."

The small business can also ask for assistance under the DBJ's CEF guarantee programme, which is a partial loan guarantee facility providing collateral support.

Chin outlined, "If you are borrowing $10 million you can get collateral support of up to 90 per cent or $9 million, if your collateral can only support 10 per cent of the sum requested."

The CEF is operated on a portfolio scheme, he outlined, "Institutions don't have to send individual projects. They go on our electronic platform and upload the project. Once it fits into CEF criteria and they are prepared to utilise the facility it's a greenlight. We audit to ensure the project fits our criteria."

Qualifications

In general, the DBJ's debt to equity ratio requirement is a minimum of 70:30 for large enterprises with annual revenues more than $425 million. These enterprises can therefore borrow 70 per cent of the cost of the project.

For micro, small and medium-sized enterprises (MSMEs), the DBJ will finance up to 90 per cent of the project cost. For energy loans, 75 per cent of loan funding is available to large enterprises and 90 per cent to MSMEs.

Micro businesses are entities which earn less than $15 million in revenue annually. They can request up to 90 per cent of project costs, similar to small businesses which earn between $15 million and $75 million annually.

Chin outlined that no special requirements have been developed for creatives. "We do have the facility recently launched coming out of the COVID lockdown. Once they fit into the specific limits for micro, small or medium, they can access funds through the microfinance window."

Loans for the micro sector range between $750,000 and $ 2.5 million. Where MFIs do small business loans and can also lend additional, in some cases loans go up to $5 million.

Chin told the Business Observer, "Since the opening of the microfinance window, we have significantly impacted the space. We have loaned $12.8 billion to the micro and small sector through these institutions. This was disbursed to over 119,000 entities."

The largest borrowers have been the distribution/trading sector with 49 per cent of loans; followed by services (restaurants, cook shops, barbers, hairdressers) with 22 per cent of loans. A significant amount is also loaned to agriculture.

Chin commented, "The bulk is in trading and distribution. The average micro borrower is into buying and selling, small wholesales, etc, who borrow for working capital to fund the purchase of goods for retail. Many borrowers in manufacturing are agriculture based. Others in agriculture need funds for planting cash crops, buying livestock, and areas like that."

The DBJ unit head said that since 2009, "When we do our accreditation of MFIs we insist that they maintain non-performing loan portfolios of 10 per cent or under. Since 2009 we have had less than one per cent loss in the portfolio. We are extremely proud of the line." Many MFIs collect payment on a weekly basis.

William Foster, a micro entrepreneur based in Kingston, expanded his business with DBJ funding that he received through a microfinance institution.
Avia Collinder

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