Avia Collinder, Business Writer
The top spokesman for Jamaican bankers is proposing that the rules on loan collateral be liberalised to make it easier for small companies starved of financing to qualify for credit.
Bruce Bowen, the president/CEO of the conservative Scotiabank Jamaica and president of Jamaica Bankers Association (JBA), said that while improvements in technology has allowed for greater mobility of money and opened up avenues of financial relief for micro, small and medium sized companies, these entities were still under-financed.
"I am well aware that despite the significant efforts on the part of Scotiabank and other commercial banks, the financing needs of MSME entrepreneurs are still not adequately satisfied," said the banker at a family business seminar hosted by the Private Sector of Jamaica (PSOJ).
Bowen pointed to a 2005 study conducted by Nicholson and Garvey from UWI and co-funded by Scotiabank, which indicates that for family-owned MSMEs, the top three sources for financing business growth were: own savings 26.8 per cent; business cash flow 25.8 per cent; and bank loans 25.8 per cent.
The study also found that "lack of access to financing" was among the top five factors seen as the most problematic in doing business in Jamaica.
Relief for MSMEs, Bowen said, could possibly flow from the new credit reporting law.
"With the gazetting of the regulations in January of this year, Jamaica now hasthe legal framework for the establishment of a credit reporting system that will provide a credit history of borrowers in order to allow for better credit assessment, risk management and loan pricing; and facilitate the provision of credit facilities to a wider segment of the population," said the JBA president during a luncheon address Monday at the FamBiz seminar.
"It is expected that, over time, the increasing use of credit bureaux and credit scores throughout the financial sector will improve access to financing for MSME entrepreneurs," he said.
Making a real difference
An expansion of collateral security, beyond the legislatively allowed land and fixed, he suggests, would make a real difference to MSMEs without collateral.
Bowen is also advocating for MSME entrepreneurs to be allowed to pledge movable property as security for a loan.
"By noting such property on a public electronic registry, a secured-transactions framework will substantially reduce the transaction cost of registering collateral interests and will enable greater access to finance and efficiency in service delivery," he said.
The banker noted that as far back as November last year, Cabinet gave approval for the enactment of such a secured transactions framework and issued drafting instructions to the chief parliamentary counsel.
"We anxiously await the legislation," he said.
The 2005 UWI study indicates that there are approximately 3,000 Jamaican family - owned businesses with two or more employees in operation for two or more years.
The study estimates that family- owned businesses contribute 30-32 per cent of GDP in Jamaica. Nearly 50 per cent of them operate in the wholesale and retail industry.
Males are the principal owners of about 80 per cent of family-owned businesses. And over 51 per cent of owners are either college or university educated.
The study also revealed that most family-owned businesses are MSMEs; three-fifths of them employ fewer than 16 workers on average; and 64 per cent earn less than J$15 million in annual revenue.
Bowen said that local banks have made significant efforts in recent times to serve the SMEs but there was more to be done. Last week, the Scotiabank group officially entered the micro-financing market with the launch of a new subsidiary, CreditScotia.
It is estimated that about 80 per cent of start-ups in Jamaica, including family-owned companies, finance their business out of their own funds or from the financial contributions of family or friends.
They are often turned down by the banking sector due to the high risks associated with start-ups with no track record, coupled with little or no collateral to support the request for financing.
Bowen says the Government's ongoing land-titling projects is another possible source of relief for the sector.
"It is important to note that nearly 50 per cent of the more than 800,000 parcels of land in Jamaica are unregistered. This can be seen as 'dead assets', since the absence of titles in the hands of entrepreneurs severely restricts their use as capital for investment and the creation of wealth," the banker said.
"For many, this means that they cannot get the value out of their biggest and, perhaps, only asset. We applaud the establishment of the public-private partnership involving the Korea Cadastral Survey Corporation and the launch of LAMP 2 in July last year."