Wed | Dec 7, 2016

JMA wants better credit terms for businesses

Published:Friday | January 2, 2015 | 12:00 AM
File A worker at a manufacturing plant.

President of the Jamaica Manufacturers' Association (JMA), Brian Pengelley, said some companies which want to expand or otherwise source funds for working capital have had to scale back or use high-interest credit cards and personal savings to keep their business going, in addition to relying on family resources.

He is calling on lenders to develop better credit terms for businesses, citing Bank of Jamaica (BOJ) rules which, he says, are contributing to the reduction of affordable credit to the sector.

"Increased regulatory scrutiny has caused banks to boost lending standards, lowering the fraction of creditworthy borrowers. For example, the monetary measure implemented by the Bank of Jamaica, which requires commercial banks to provide a 90-day reporting system of bad debt is stringent. This gives the bank very little flexibility. The regulators need to flatten the policy so as to encourage greater lending," he said.

Partner plans, credit cards

Pengelley said that from his observations, some small businesses in the manufacturing sector were delaying expansion and were seeking working capital from partner plans and credit cards to offset certain expenses, using personal saving, tapping into family financial resources and also seeking private or equity financiers.

Pengelley noted that among larger companies, some were considering listing on the junior market of the Jamaica Stock Exchange as one way of getting funding to undertake expansion activities.

"Tightness in the loan market is not a new phenomenon, but represents a deep-rooted, systemic, structural problem experienced by the sector over the years," he said. The consequence was restricted expansion, stifled innovation and encouragement of inefficiency, which impacts the competitiveness of the sector, he added.

"When businesses are unable to access the credit they need

they may be underperforming, slowing economic growth and employment," Pengelley said.

The culture in the banking industry has been averse to lending to businesses which are viewed as relatively less profitable and more risky. "Banks are not willing to take risks. Their interest spreads are too high and relatively uncompetitive in comparison to global partners," he said.

The manufacturing sector is estimated to have contributed 8.4 per cent to Jamaica's gross domestic product in 2013. It employed 71,875 persons during the year.

avia.collinder@gleanerjm.com