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Back off! Government told to limit role in providing small loans

Published:Saturday | July 3, 2010 | 12:00 AM

Patrina Pink, Gleaner Intern

Gerard Johnson, the Inter-American Development Bank (IDB) representative in Jamaica, has urged the Government to rethink its role in the provisions of loans to micro-businesses.

Johnson was speaking at the signing ceremony for a micro-business loan agreement between the United States-operated non-profit bank and the Industrial Commercial Developments (ICD)-operated Micro Credit Limited.

The IDB has extended to Micro Credit Limited a loan of US$450,000, or just over J$38 million, to lend to persons.

Much of the money was sourced from the government of Spain through its Spanish Trust Fund.

Johnson argued that "the track record of governments in this area is very horrendous anywhere in the world". He also argued that the Government was ill-equipped to deal with the financial needs of micro-businesses.

"Why create public entities that lend when you're broke?" he asked.

"This undermines non-government organisations. Instead, government should seek to channel those funds to existing non-government organisations."

He said governments should focus on improving access to the loans already available in the system.

"The problem is access to these loans. The role of government should be to get persons to the point where they qualify for access."

Referring to the Jamaica Business Development Corpora-tion, Johnson lauded recent efforts to develop micro-enterprises but said that the organisation should limit itself to providing technical assistance to business owners, leaving lending to organisations better suited to provide it.

more harm than good

Vikram Dhiman, managing director of Micro Credit Limited, echoed the sentiments of Johnson. He argued that government assistance, especially in the form of grants, was often more an evil than the good it was intended to be.

"These grants are not self-sufficient, and people use them for anything - not exactly what they were intended to be. It often just ends up being a gift." said Dhiman.

Micro Credit Limited will provide six-eight-week loans to micro-businesses at an interest rate of one per cent a week.

Of an estimated 420,000, only 15 per cent of this market is being served. The Micro Credit Limited loan arrangement will provide assistance to micro-business owners in rural areas.