'We want to be regulated'
With the Consumer Affairs Commission (CAC) warning consumers about what has been referred to as loan sharks, chairman of the Jamaica Association for Micro-Financing (JAMFIN), Dr Blossom O'Meally-Nelson, has called for the speedy passage of the microfinance bill, which she said has been under development for the last two years.
She said it was critical to establish and institutionalise a code of practice that will govern a vital sector of the economy, noting that as long as this is not done, legitimate and properly run microfinance organisations will bear a bad label.
"It's a very difficult sector to pin down and say, 'whodunnit?', which is why it is very important to have the microcredit act in place and for it to have teeth," O'Meally-Nelson said, reacting to a recent warning by the CAC against dealing with some microcredit institutions.
The CAC, through its commu-nications specialist Dorothy Campbell, warned the public to be careful in dealing with same-day loan and microfinance outfits since they may find themselves paying mounting fees while never getting the benefit of even a loan.
Campbell suggested that consumers would be better off dealing with established financial houses including commercial banks, credit unions and thrift societies.
However, O'Meally-Nelson said such a recommendation is troubling.
"When you go on to recommend that people borrow from credit unions, commercial banks and thrift societies and ignore the major microfinance institutions that have disbursed billions of dollars in the sector and have helped hundreds and thousands of people, acting like they don't exist, that bothers me," O'Meally-Nelson told Wednesday Business in an interview on Monday.
The warning from the CAC was made over the Christmas season amid consumer complaints that microcredit outfits were charging exorbitant fees even where services were not rendered.
O'Meally-Nelson admits that there is a problem, but says more evidence is needed before blanket statements are made.
"There is nothing wrong with that. [It's] really admirable on the part of the CAC, but when you use the sort of broad-brush approach that says 'people go to these institutions and people are saying ...', there is nothing specific," the JAMFIN chairman charged.
JAMFIN represents 16 of the largest players in the microfinance sector and counts among its board members representatives from Jamaica National Microfinance, Niche, Access Financial and First Union.
O'Meally-Nelson estimates that there may be more than 120 companies offering microfinance services and JAMFIN recognises the urgent need for a properly run subsector.
"This is why we have formed an association and set up standards. Entities have to qualify for membership and meet certain criteria," she said.
"This is also why we have set up a training institute to train other people who may not be members, but to tell them what best practices are," added O'Meally-Nelson.
Microfinance institutions are largely unregulated and may seek exemptions from stipulations under the Money Lenders Act. They also do not come under the oversight of the regulatory division of the Bank of Jamaica. The Ministry of Finance says 29 institutions have been granted exemptions and continue to conform to requirements.
"Through applying for this exemption, they will have to submit numerous documents for processing before this exemption can be approved," Elaine Oxamendi Vicet, communications specialist in the ministry, said in response to Wednesday Business queries.
Among those documents are audited financial statements, loan disbursement reports, tax compliance certificates and company and directors' taxpayer registration numbers.
The exemption order is valid for one year, and as such every year the company has to resubmit an application which will only contain their audited financial statements, valid tax compliance certificate and their current source of funds, Vicet said.
On a quarterly basis, "the company has to submit the details of loans disbursed, total loans for the period, any changes in directorship of the company, any changes in capitalisation of the company and any changes in the overall activities of the company", she added.
Those who do not apply for exemptions are not required to report, and as such are not regulated.
Referring to the charges by the CAC, the JAMFIN chairman says her organisation is on board and as far as hidden fees and unethical practices are concerned, she feels this is all the more reason why there needs to be sound regulation.
"Transparency is a key fact for us under the proposed microfinance act because that is really protecting consumers. We are all committed to this and not charging people for services that they don't get. We frown on such things," O'Meally-Nelson said.
The Ministry of Finance said the first draft of the Microcredit Bill was prepared and reviewed by relevant stakeholders. Vicet says it is not yet finalised and will be revised. Once revised, the bill will go through the necessary legislative process, but there is no timeline as to when this will be completed.