Beware of loan sharks - Tufton
Former Minister of Industry, Investment and Commerce, Dr Chris Tufton, says small business operators who borrow money from microfinance lenders must be careful to understand the terms and conditions of those loans before signing up.
Tufton, in a release yesterday, said oftentimes these terms and conditions are so harsh, they place businesses in consistent debt, with very little chance of recovery, and make business operators work only to pay back the loan sharks.
Tufton, who had been scheduled to address the matter at a Jamaica Labour Party (JLP) constituency conference in Southern Trelawny yesterday, said while there was tremendous value to economic activity in microfinancing, increasingly he had observed that the sector was being dominated by lenders who offer easy access to loans but with overly burdensome interest rates and severe penalties for non-compliance.
Citing a case where a public passenger bus operator borrowed $40,000 in July 2013 and had difficulty meeting a few payments and had his bus seized by the loan shark, he said the small business operator subsequently paid back $144,000 and was still told that he owed $126,000, and would not be allowed access to his bus until the outstanding amounts were fully paid.
tantamount to abuse
Tufton said this was tantamount to abuse, as even though the lender had been more than compensated, there was no way that that small minibus operator could sustain that kind of repayment schedule and still operate a successful small business.
According to Tufton, micro-finance companies are charging up to six per cent interest per month for loans for up to two years, or 72 per cent per annum.
"I have heard of cases where up to 96 per cent interest is charged per annum," he said.
The former commerce minister said the time has come for the Government to look at this sector to determine, where necessary, legislative support for a more orderly operation of the sector, not just as it relates to interest charges but also debt rescheduling to support small businesses that face difficulties.
"As we move to support more modern insolvency legislation, we should also seek to ensure that small businesses are given the best chance of survival and expansion," he said.
Tufton also called for greater public education for small business entrepreneurs to understand the risks and benefits associated with borrowing. He said as it gets easier to borrow, it is important that the borrower arm himself or herself with information on terms and conditions.