By K.C. Soares, Contributor
Soares
TODAY I will be focusing on the National Development Foundation of Jamaica (NDFJ). I will be outlining a brief background of the institution, evaluate its present operational activities and suggest ways in which the services offered may be improved.
The NDFJ is a private sector voluntary organisation registered in 1981 under the Companies Act of Jamaica. It was set up primarily to strengthen the development of entrepreneurial skills and practice in Jamaica through the provision of credit and technical assistance. The initiative for the establishment of this institution was spearheaded by the Small Business Association of Jamaica and representatives from corporate Jamaica including Financial Institutions, Insurance Companies, Credit Unions and other private voluntary organisations. Initial support also came from the Pan American Development Foundation of Washington and the USAID. The founding members of this institution came from a wide cross section of the society and included well known names such as the late Hon. Carlton Alexander, the Hon. R. Danny Williams and Oliver Clarke.
Since its establishment the institution has opened branches in Mandeville, Ocho Rios and Montego Bay with sub-branches in Port Antonio, May Pen, Santa Cruz and Savanna-La-Mar. The NDFJ grant loans to the small business sector with a maximum of $5,000,000. The basic principle on which loans are granted is commendable and more institutions should adopt this policy. As a policy, the NDFJ should place more emphasis on the feasibility of the project and the integrity of the principals rather than on collateral. This is a position I have long been proposing for all lending institutions.
The norm at a financial institution when one requires a loan is that three questions are asked. How much money? What for? What security do you have? If the answer to the third question does not reflect a security / loan ratio of at least 2.5:1 then there is no further processing of the loan. At the NDFJ, as is the case in many other financial institutions, the loan officer is very limited in his or her ability to assess the feasibility of a project and usually relies heavily on the collateral offered in making a decision. This 'immature' practice is one of the main reasons for the abundance of Non-Performing Loans (NPL) not only in the government related financial institutions but also in the commercial banks. `The NDFJ administers a revolving loan fund and therefore depends on its customers paying back their loan in order to continue lending. For some time now there has been great problems in the repayment of loans. The NPL now stand at 35% - and climbing. (I wish to remind readers that the acceptable level of NPL in a financial institution is 5%). One of the main reasons for the high level of bad debts at the NDFJ is the poor assessment of projects. The NDFJ is no longer placing emphasis on the feasibility of the project but like other institutions is more interested in the collateral offered.
The bad debt situation at the
SOARES
NDFJ is critical as, if there is no money coming in then there will be no money to lend. The NDFJ must take remedial action immediately.
I suggested in a previous article that an Asset Management Company be set-up to take care of all the NPL's from the government financial institutions to include the NDFJ. Once getting rid of the NPL, the NDFJ should now ensure that no such loans are returned to the books. This can only be done by improving the quality of management.
I suggest the following. In addition to the Kingston main office there should be four branch offices - Mandeville, Savanna-La-Mar, Montego Bay and Ocho Rios. The sub-branches should be closed. The operations should be decentralised with each branch staffed with a top-level manager. Each manager should be given a certain amount of autonomy, to approve loans up to a certain limit. Loans above this limit should be referred to the main branch.
The critical aspect of this restructuring is the employment of quality managers. The decentralisation will not only save on the time taken to process a loan (which presently may be as long as six months) but will cut costs as far as salaries and other overheads are concerned. The money saved should be used to attract better managers. If corrective measures along the lines outlined above are not taken immediately by the Directors of NDFJ, then they should start thinking about dissolving the company, selling the assets and distributing the proceeds of the sale to charitable organisations such as the Salvation Army.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com
