Jamaica National Building Society group has developed a new loan programme for remittance clients who can qualify for financing for home improvement, education or business.
The JN Swipe programme, being executed by JNBS Foundation, is targeted at rural residents who are recipients of money transfers through JN Money Services Limited.
The project, which is backed by the Inter-American Development Bank, has been rolled out in six communities, with four more to go, JNBS said in a release on Thursday.
The IDB has committed US$210,000 to the project, and JN Foundation has contributed US$90,000, the building society told Sunday Business on Friday.
The IDB and its affiliated Multinational Investment Fund tracks the flow of remittances from migrant workers around the world annually. The development bank has long been concerned, however, that the majority of remittances do not support productive or developmental activity in the recipient countries but are generally used to finance consumption.
"The IDB in signing the project had said they wanted it to engage the residents in rural communities and encourage them to use the formal financial system; manage their resources more effectively and leverage their remittances to access financing for productive activities," said JN Foundation general manager Saffrey Brown.
The JN programme as configured would draw some of those funds into the credit market to fund economic activity.
The expectation is that the loans would be serviced from future remittance receipts.
But, said JN, debt servicing would be the responsibility of the borrower.
"The remittances can be seen as either security for the loan or as loan repayment. However, the responsibility for the loan repayment would stay with the borrower and not the remitter," Brown said in response to queries.
Remittance recipients would be able to borrow up to J$250,000 from JN Small Business Limited to be repaid over two years.
To qualify for the loan, the borrower must prove that he/she has been a recipient of remittances over the past 12 months, and show evidence of savings from remittances received. The applicant must have at least 10 per cent of the loan amount in savings. Otherwise, the sender of the remittances would be required to guarantee the loan.
JN also wants applicants to demonstrate how remittances have improved their lives. Brown said applicants would need to show that they have previously used remittances to operate a business, purchase furniture or improve their homes.
"The factor was injected so as to provide an alternative use of remittances apart from consumption and is therefore critical for receiving the loan," said Brown when asked why JN would impose such an unusual condition.
Education loans priced at 35 per cent on the reducing balance are repayable in nine months, while credit for business expansion must be repaid in one year, and home loans in two years.
Interest on the home enhancement loan is set at 22 per cent on the reducing balance, while business loans are priced at 1.0 per cent add-on per week, JN told Sunday Business.
JN Swipe is now in effect in Balaclava and Southfield in St Elizabeth; Lionel Town, Clarendon; Grange Hill, Westmoreland; Lawrence Tavern, St Andrew; and Yallahs in St Thomas.
The other four communities targeted are Frankfield and Crofts Hill in Clarendon; Hopewell in Hanover and Buff Bay in Portland.
Saffrey Brown, the general manager of JNBS Foundation, says JN Swipe is meant to create a pool of equity in the participating communities and stimulate business activity.
Brown says business loan applicants must show proof of access to premises for operation of the business, and demonstrate that a market exists for the product or service.
Jamaica's remittance market is back to pre-recession levels of US$2 billion of inflows per annum.
Central bank data for current inflows - US$851 million for the January to May 2012 period - indicates that remittances are on track to exceed last year's record of US$2.025 billion.
The monthly 2011 inflows averaged US$168.75 million, while monthly flows in 2012 are averaging US$170.32 million.
Remittances amount to 13.8 per cent of GDP.