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IDB to lend Jamaica $12b for financial reform

Published:Friday | June 10, 2016 | 6:00 AMSteven Jackson

The Inter-American Development Bank (IDB) plans to offer a US$100-million ($12.5 billion) loan to Jamaica as it tackles banking access, the cost of borrowing, and the relatively high unbanked population.

The loan for 'Financial System Reform Support' requires approval by the IDB board.

IDB country head Therese Turner-Jones described the loan as new and part of the 2016 pipeline of programmes remaining under the last IDB-Jamaica country strategy.

The IDB is preparing a new five-year country strategy for approval in November.

The US$100m under review takes forward some prior reforms from the Jamaica Competitiveness Enhancement Programme such as the Security Interests in Personal Property Act (SIPPA) and insolvency regimes, Turner-Jones told the Financial Gleaner in a phone interview that included IDB technocrat Jaiwattie Anganu.

Under SIPPA, a searchable registry called NSIPP has been created, allowing for personal property to be used as collateral for bank loans. The programme was suspended last year to better secure personal information.

Some 30 per cent of Jamaican adults are without a bank account, which lags the region, and only eight per cent of adults have a loan from a formal financial institution, the IDB said of the consumer market. The ratios are similarly low among businesses, and they too lag other markets in the Latin American and Caribbean region - LAC - the development bank added.

"The lack of access to credit is especially prevalent among low-income households and micro, small and medium enterprises. Only 26 per cent of MSMEs report having a bank loan or line of credit, compared to the average 38 per cent for LAC countries," said the IDB in documentation on the Jamaican loan.

The IDB board was initially slated to review the loan request in March. A new review date has not been set.

In an email to the Financial Gleaner, Anganu said the loan would support legislative work, financial inclusion and regulatory supervision.

"Specifically, it will enhance the securities, pension and insurance regulations and strengthen transparency in keeping with the Financial Action Task Force on money-laundering recommendations," Anganu said.

"With regard to financial inclusion, it is expected that the reforms supported by the programme will benefit individuals and the firms that are currently excluded or not sufficiently integrated into the financial system."

The loan programme requires the Jamaican Government, in conjunction with the IDB, to develop a National Financial Inclusion Strategy. At least some of the loan proceeds will be deployed to the Development Bank of Jamaica (DBJ).

"The implementation of this will see consumer protection enhanced, the agencies under the public sector targeting MSMEs consolidated to make them more effective and the DBJ's Credit Enhancement Fund improved in order to facilitate more lending to MSMEs," said Anganu.

The IDB team said the reforms are also meant to tackle the rights of creditors and contract enforcement; and that additional work will be undertaken regarding the use of NSIPP and implementation of the new insolvency regime.

The Financial System Reform Support programme is structured as a policy-based loan to be disbursed through the Ministry of Finance.

steven.jackson@gleanerjm.com