FTC study on microfinance sector to be released
A study conducted by the Fair Trading Commission (FTC) to assess the structure and characteristics of the micro-finance industry has now been completed and will be released before the end of April, Executive Director David Miller said.
The study was also done to assess the scope for greater competition in the sector, but Miller said that while they know of no company or individual who has expressed an interest in setting up business in the microfinance sector, "we recognise that there are several that are already in the market, and every now and then you see another name comes up".
Assessment of the micro-finance industry is being done against the background of the imminent enactment of a microcredit bill, which is still in the draft stage but on which the Ministry of Finance last week asked the FTC to comment.
"We submitted our comments, but I'm not aware of the timeline for completion," Miller told the Financial Gleaner.
In January's edition of its magazine, Compete, the FTC said it has received numerous complaints about microfinance institutions, which offer services primarily to low-income individuals who would typically not qualify to access those services from commercial banks and other regulated finance houses.
"With the imminent enactment of the micro credit bill, which will create an authority to regulate micro-financing institutions, the FTC has initiated a study to assess the structure and characteristics of the microfinance industry and the scope for greater competition," the commission said.
"To the extent that the microfinance institutions cater to a vulnerable segment of consumers, the study will focus on the extent to which customers are adequately informed about the terms and conditions under which these products are being offered."
In January this year, chair of the Jamaica Association for Micro Financing, Dr Blossom O'Meally-Nelson, called for the speedy passage of the micro credit bill, which she said has been under development for the last two years.
Against the background of the Consumer Affairs Commission (CAC) warning over last Christmas season about what has been referred to as loan sharks, 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, 'whodunit?', 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 the CAC's warning against dealing with some microcredit institutions.
The CAC had warned the public to be careful in dealing with same-day loan and microfinance outfits since consumers may find themselves paying mounting fees while never getting the benefit of even a loan.
It 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 was 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," she said.
The CAC warning was made amid consumer complaints that microcredit outfits were charging exorbitant fees even where services were not rendered.