Erica Virtue, Senior Gleaner Writer
The Development Bank of Jamaica (DBJ) has provided financing for nearly 20,000 projects in the micro, small- and medium-sized enterprises (MSME) sector over the past three years, data from that office has revealed.
However, high interest rates from approved lending institutions have curtailed planned expansion.
As a result, employment opportunities are also not being realised and economic conditions worsen.
Responding to questions from The Sunday Gleaner, DBJ said approval was granted for J$3.5 billion in loans to be disbursed through approved financial institutions (AFIs), including some which charge weekly interest on loans.
Over the past five years ending 2012-2013, the employment returns on that disbursement is 3,324 jobs.
The bank, which was created from the merger of the Agricultural Credit Bank of Jamaica Limited and the National Development Bank of Jamaica Limited on April 1, 2000, does not lend funds directly to individuals or promoters of projects.
Instead, funds are channelled through AFIs and microfinance institutions (MFI) which provide the initial credit evaluation and loan supervision before lending to clients with viable projects.
AFIs, the DBJ said, include commercial and merchant banks, the National People's Co-operative Bank and credit unions. MFIs include Access Financial Services Limited, Jamaica Credit Union League Limited, JN Small Business Loans Limited, Micro Credit Limited and NationGrowth MicroFinance Limited.
Last week, a private AFI was seen unloading a truck filled with furniture seized from a borrower who was unable to meet the terms and conditions of his loan.
The borrower complained bitterly to The Sunday Gleaner, saying the viability of his business was at stake as a result of the high interest rates charged by the lending institutions.
While he was grateful for the funds, he said the expansion he was hoping for has not materialised.
"People are paying back interest weekly. Someone can pay 52 per cent interest in a year. It's killing many people. But the real problem is that the climate is not enough to employ more people," said the loan beneficiary, who asked that his identity be withheld, as well as that of the AFI.
According to the borrower, ownership of his motor vehicles is now at stake.
Professor Rosalea Hamilton, former president of the MSME Alliance, said the situation is daunting to borrowers.
Hamilton told The Sunday Gleaner that interest rates are driven by the demand for consumer loans.
"Getting loans from the AFIs is a killer. It's killing the businesses, and there are several reasons for that. One historical reason is that the DBJ has suffered at the hands of borrowers who see the monies as government money. Hence disbursal through approved institutions," she said. as she pointed out that loan disbursements had in the past been done through the Government.
"The micro sector, which is really where the problems are, those loans are dominated by consumer loans. That is what drives the rates because they are used for things such as cars and appliances," Hamilton explained.
Two years ago, the Government provided the legal framework for micro institutions to use salary deductions as a mechanism to protect loans from MFIs.
No guarantee on returns
"The business reality is that you are not guaranteed returns on investment and you need to build the businesses, and they (lending institutions) set rates that enable growth," she stated.
The DBJ said it measures the success and effectiveness of the usage of funds by way of, "(the dollar value of) new investments supported by DBJ financing and the number of potential jobs created by its financing".
Hamilton said the high interest rates are not felt as badly for short-term loans, but difficulties arise when loans are for longer periods.
She said in some segments of the business markets, such as buying and selling, such loans are more tolerable, but long-term loans are distressing.
"In some countries, microlending at those rates is prohibited for more than six months," she said, noting that an international expert in the area recently expressed horror that such rates persisted for more than that length of time.
The DBJ said its mission was to assist in the development and modernisation of viable enterprises in industry, agriculture, agro-industry, manufacturing, information processing, mining, tourism and the services sectors, with special emphasis on the provision of loan financing to micro, small- and medium-sized enterprises.