Legitimate providers of small loans in the micro market believe the bill to regulate the sector may have gone too far in its efforts to address predatory lenders.
Dr Blossom O’Meally-Nelson, chairman of the Jamaica Association for Micro Financing (JamFin) wants the crafters of the Micro Credit Act to rethink its stipulations, saying that the legislation meant to formalise the sector could end up creating a bigger black market.
“The act is largely punitive and does not create any incentives for registration and compliance. As it is, it can have the effect of driving lenders underground, thus swelling the troublesome informal MSME sector,” O’Meally-Nelson warned in an interview with the Financial Gleaner.
When pressed on possible incentives, she suggested that the authorities consider tax waivers and a period of ‘grandfathering’ for lenders to become compliant with the law, without penalty, after it is passed and enacted.
Tabled in February, the micro credit bill lays out the criteria for licensing and puts limits on the interest rates charged on loans by linking them to Treasury bill rates and cost of administration.
And it introduces criminal penalties of up to a year in prison and fines of up to $2 million for infringements.
Current law, under the Money Lending Act, requires lenders to seek a waiver from the Ministry of Finance if they want to lend at rates above 20 per cent per annum.
O’Meally-Nelson says that only, around 36 outfits have sought those waivers but the sector is estimated to have around 200 operators.
The JamFin chair, whose organisation represents 15 members, says the group is recommending that the Government fund a study to “garner information on the cost of lending and the support services which go to MSMEs to enable them to repay loans and grow their businesses”.
Across the micro sector, loan rates are averaging 13-21 per cent at the lower end and around 52 per cent at the higher end, she said, adding that, comparatively, the banks lend at around 9-18 per cent and 51.99 per cent at the respective ends of the scale.