General manager of Churches Credit Union (CCU), Basil Naar has suggested that the Development Bank of Jamaica (DBJ) cease operating through intermediaries and instead lend directly to entrepreneurs.

“If we really want to develop Jamaica we need to a have a development bank lending directly to the borrowers,” Naar told the Business Observer in an interview last Friday.

“How long are we going to continue with this inaccuracy of calling the DBJ a development bank,” Naar questioned.

He argued that entrepreneurs needing funds for business projects were, for the most part, unable to access the DBJ assistance through banks and other financial institutions as interest rates and other stipulations for the loans were prohibitive.

Naar says that the DBJ should instead shift its model to a true venture capital bank and directly engage small and medium-sized enterprises (SMEs).

However DBJ general manager responsible for approved financial institutions (AFI), Yvonne Lewars, yesterday dismissed the idea commenting that in the past development loans were disbursed directly resulting in huge bad debt portfolio.

“At this point in time the board does not support it,” Lewars said of Naar’s suggestion. She argued that there was a “moral hazard”, in that people were averse to repaying government loans.

“Right now we are collecting a big debt from the old NIBJ when they lent directly,” Lewars said.

The DBJ executive added that the development bank’s administrative capacity was inadequate to deal with direct loans.

Funds from the DBJ are typically on-lent through AFIs, which are instructed to add a margin of 5.5 per cent in the case of loans to small and medium-sized enterprises.

“Those loans go to the client at 12 per cent,” Lewars said, adding that the margin for AFIs was increased from three per cent to the current 5.5 per cent last July.

Acknowledging that his company was one of those financial institutions that on-lent DBJ funds, Naar nonetheless argued that in the interest of economic growth, the procedure was not the best approach.

“You can’t have an intermediary taking the funds and putting a spread on it,” he emphasised, adding that insitutions, in protecting their depositors, had to seek collateral.

Naar said that it was very difficult for a small entrepreneur to finance a major project using DBJ funds because it had to go through a financial institution thus pushing up the cost of the venture.

“That financial intermediary applies its own lending criteria which are not the lending criteria that satisfies an entrepreneur who needs time and space to develop an idea,” he argued.

“The DBJ should be a true development bank, a true venture capital bank and lend directly to the entrepreneur,” the credit union boss insisted.