Renewed calls for removal of ‘criminal elements’ in Microcredit bill
The joint advocacy committee formed between Jamaica’s two microfinance associations trust that its voice is loud enough to get the Government to change its stance on linking micro lending rates to Treasury bill yeilds, as well as remove some criminal elements of the pending Microcredit bill.
While the Jamaica Micro Financing Association Limited, JaMFA, and the Jamaica Association for Microfinancing, JamFin, held different views on how to improve on the operations of some 200 microfinancing firms in Jamaica, the associations found common ground earlier this year when the members met with Minister of Finance, Dr Nigel Clarke to air their grouses on the bill, which they say could “destroy the sector” in its current state.
The joint advocacy committee has since recommended that the Government seek to adopt a market-determined rate for the sector and remove the proposal to link its rates to the Treasury bill - which continues to track at or below two per cent per annum - and the cost of issuing microloans.
The bill, which was tabled in February, is clear in its intent to curtail predatory lending practices, including the rates currently charged by microlenders which tend to range beyond 50 per cent, along with intimidatory practices by lenders in getting borrowers to repay debt.
Microlenders, while accepting that the sector needs greater supervision, contend that the terms laid out in the bill already brings uncertainty to the market.
“Our proposal is that the rate should not be fixed or capped. We should have the market determine the rate. The influences of supply and demand will determine where the rate will settle. That enables both the clients to get the best rate and that will force the competitors to respond to what is happening in the market,” JaMFA’s acting chairman, Andrew Mais said during the association’s second leadership forum last Wednesday.
In addition to rate cuts, the bill stipulates that lenders maintain customer records for a minimum of seven years and conduct an audit of operations on an annual basis for submission to the Bank of Jamaica, BOJ.
“The interest rate is just one of those issues. There are many other issues that we find anti-competitive and it’s only going to inhibit the sector’s growth and the flexibility with which entrepreneurs operate within the space,” Mais said.
The bill in its current form also requires microlenders to conduct feasibility analyses for opening new branches, following which approval must be given. Lenders are also required to give at least six months notice for the closure of branches. The supervising authority for the sector is the BOJ.
“There are approximately, if not more than 40 new criminalised positions within the bill. From a simple matter of not submitting report etc. ... you could find yourself in jail,” the acting chairman told the Financial Gleaner.
“What we are saying is, instead of criminalising we would suggest a more moderate approach, whether it is a fine or suspension but when you criminalise some part of the act, the owner and operators of these businesses will end up with a criminal record and that’s not the same with someone who operates within the banking industry,” he argued.
Minister Clarke has confirmed that amendments are being made to the Microcredit bill. Subsequent to the passage of the bill, the BOJ will be implementing new rules for the operations of microfinance firms. The Consumer Affairs Commission will also issue a code of conduct to include the use of clear and simple language in loan agreements.
“The minister in his dialogue with us did respond favourably to a number of amendments we suggested. We don’t have any kind of indication yet from the minister as to when it is likely that the process will be completed, but we are very optimistic that significant portions, if not all the recommendations will be adopted and we look forward to seeing the final draft,” Mais said.