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Scotia Group enters microfinance market

Published:Wednesday | November 2, 2011 | 12:00 AM

Scotia Group Jamaica has created a new subsidiary, Scotia Jamaica Microfinance Company Limited, to serve a segment of the credit market that tends to borrow short term at high cost.

The company, which will operate under the brand name CreditScotia, signals a culture shift for the Canadian-owned banking group known for its ultra-conservative approach to lending.

Scotia Group owns 100 per cent of the microfinance company's 100 million ordinary shares.

CreditScotia will target micro entrepreneurs mainly in the trading and manufacturing sector, and will also offer personal loans for educational purposes. The company has no plans to piggy-back on Scotia's expansive branch network but will operate initially from four dedicated offices in three parishes.

Loans will range between J$60,000 and J$850,000. Interest rates and collateral requirements were not disclosed.

"In the marketplace, there are four sectors, commercial, small business, and corporate, which Scotia already serves," said Patsy Latchman Atterbury, vice-president of small and medium enterprises at Scotiabank.

"The unserved part is microfinance, so this represents a closing of the gap for us," she said.

Microfinance operators are often low on the traditional type of collateral demanded by traditional banks and are considered high-risk. Micro lenders compensate for the risk by selling credit at high interest rates.

One of the top players, JN Small Business Loans Limited, for example, prices its loans at 1 per cent per week, which amounts to 52 per cent per annum. Bank loans, by contrast, are now priced at about 17-20 per cent.

Conservative stance

Scotiabank has been heavily criticised in the past for shutting out entrepreneurs, but its weathering of the financial crisis while other major banks sought bailout assistance in the 1990s was credited to its conservative stance toward risk.

The banking group has not been totally divorced from the sector, however. It was a partner in and conduit bank for loans under Micro Enterprise Finance Limited (MEFL), a non-profit corporation sponsored by the Canadian International Development Agency, Bank of Nova Scotia Jamaica Limited and Kingston Restoration Company.

MEFL's activities have now been terminated, said Atterbury.

She declined to specify how big a slice of the the microfinance market CreditScotia is targeting.

"It's an informal sector, so it is difficult to gauge," she said. There are lots of participants and so the potential is huge," she said.

CreditScotia will occupy the old offices of MEFL.

MEFL had offices at 12 Duke Street, which served as its headquarters, as well as Gateway Plaza in Old Harbour, St Catherine; Murray Avenue in Morant Bay; and Main Street in Brown's Town, St Ann.

"It's a significant opportunity to service the needs of the unbanked and help them to transition into the formal sector," said Yvette Anderson, who has been tapped to run the new business.

Anderson said that as the business grows, the company will continue its build-out.