Special loan pool - Three moneylenders cut rates to stir business
Published: Sunday | April 12, 2009
A group of moneylenders, formed just months ago in October, are cobbling together what they hope will become a $100 million revolving pool of funds to lend at cheaper rates to clients.
Three companies in the new Jamaica Micro Financing Asso-ciation (JIFA) have already signed on to the plan.
They have agreed to lend to small and micro businesses in the services and distributive trading sectors at 0.75 per cent per week on the reducing balance for loans of up to $100,000.
This translates to a loan rate of 39 per cent, compared to the 1.5 per cent per week or 78 per cent per year that one of the companies said it normally quotes.
Their aim: to give their clients a reason to start borrowing again and borrowing more during the economic downturn.
The three companies are: Chris and Charles Investment, headed by Trevor Hutchinson; First Union, headed by Lloyd Campbell and Worldnet Investment Company Limited, headed by Hurshley Cyrus.
"The objective is really to basically keep credit going for micro enterprises," said Cyrus.
"We have decided that through the Jamaica Micro Financing Association to put together some funds whereby persons can approach any of the companies involved."
The initial three signed off on the plan just over a week ago.
Cyrus declined to divulge what amount each company is contributing to the revolving fund, though First Union had initially indicated it was willing to put in $5 million.
Cyrus, however told Sunday Business that clients could access loans from $20,000 to $100,000 at an interest rate of 0.75 per cent on the reducing balance per week.
At the new 0.75 per cent rate, Cyrus' company has essentially cut loan rates by 50 per cent.
He said the group would be willing to go up to $300,000 for businesses in the transportation sector but only those that have been operating for at least two years and employ around three persons.
Collateral requirements were flexible, he said.
Cyrus is expecting that the funds available for lending from the pool would grow as more members of the association sign on.
"We do not accept deposits from the public at all," he said. "We also have a code of conduct for our association ... so we are not like a Worldwise or a Cash Plus."
He said the loans are now available for micro-entities who might need a soft loan. But Cyrus believes that in making the loans available, this will help to improve the economy in some way.
Moneylenders, who are monitored by the finance ministry under the Moneylending Act, typically lend small sums to persons who are unlikely to get loans from the banks because they lack collateral and are deemed too risky - pricing the risk into their more expensive rates.
Loans to micro companies, said Cyrus, are usually offered for motor vehicle purchase and salary advancement.
Turning to his own company, Cyrus said Worldnet has been in operations since 1997, but was initially in car importation and financing.
In 2002, the company refocused on micro lending.
Worldnet has a portfolio of $120 million in loan receivables. The default rate, said Cyrus, is five per cent.