Fri | Jul 30, 2021

Nikisha Walters | Convergence of microfinance sector and MSMEs in Jamaica

Published:Sunday | April 25, 2021 | 12:22 AM

The evolution of the MSME sector in Jamaica along with the thrust towards its survival in light of the challenges currently being faced by the COVID-19 pandemic, have opened renewed conversations on the topic of microfinance. It is pertinent that these conversations are put to tangible action in order to facilitate a robust recovery of the sector as these challenges could be converted to opportunities.

In Jamaica, the microfinance sector has made significant contributions to the local economy, especially as it relates to funding of the MSME sector. The regulatory framework that has been set through the passing of the Microcredit Act, 2021 is a step in the right direction for the Jamaican MSME landscape as the global microfinance sector operates within a highly regulated environment.

In the Microfinance Barometer 2019, published by Paris-based Convergences highlights the developments in global microfinance over the past 10 years. The publication analysed and highlighted how the sector has evolved since its inception in the mid2000s. For the period 2009-2018, the number of borrowers globally increased by 43 per cent. Microfinance Institutions (MFIs) globally recorded an 8.5 per cent growth rate in 2018 (in terms of total loans disbursed) when compared with the sector’s performance in 2017. In its 2018 Global Microfinance Study, Convergences also outlined that the Latin America and the Caribbean (LAC) region is the second largest in terms of client-to-population penetration within the global microfinance sector, noting that approximately 44 per cent of the LAC population participates in the microfinance sector.

These global trends highlight examples of the importance and relevance of the MSME sector, and it is imperative that the sector, especially now, has ease of access to financing, advisory, and business support services in order to meet today’s challenges in order to embrace opportunities in an effort to scale their business operations. At the same time, microcredit institutions must become regulatory compliant, be credible, and also ensure that their products and services are in keeping with the best interests of the end users.

The Microcredit Act, 2021 will require microfinance institutions (MFIs) to apply for a licence through the local regulatory body and become compliant with measures stipulated to encompass corporate governance, the employment of fit and proper persons, proper record keeping, presentation of accounts and reporting, and outlines penalties with respect to non-adherence. Also mong critical components is the protection of customer data, which aligns itself with the Data Protection Act, 2020. The passing of the Microcredit Act presents a great opportunity for the subsequent regulatory framework to be aligned with Jamaica’s achievement of sustainable growth and development outlined within the following:

VISION 2030 JAMAICA

Vision 2030 Jamaica fully aligns itself with the United Nation’s Sustainable Development Goals (SDGs). This National Development Plan outlines four objectives that the country aims to achieve by 2030. With the formalisation of the microfinance sector, the topic of sustainable finance should now be brought to the fore, and both the MSME and microfinance sectors should be given the necessary support and guidance needed to incorporate this within their corporate governance framework.

MSME AND ENTREPRENEURSHIP POLICY

The updated MSME & Entrepreneurial Policy clarifies the multisectoral nature of MSMEs and also makes reference to data provided by Tax Administration Jamaica, which outlined that approximately 97.6 per cent of all classified taxpayers for FY 2015-16 fell within the 2013 Policy definitions of MSMEs, with 83 per cent of these enterprises falling within the micro sector. One could almost conclude that the success of the economy is predominantly hinged on the sustainability of the MSME sector. Part 1, Section 2 of the Microcredit Act, 2021, outlines that a microcredit institution is a company, licensed under this act to provide a microcredit service to individuals and/or MSMEs. These services include the granting of credit facilities to individuals and/or MSMEs as well as the provision of business advisory services. This opens an avenue for well-equipped MFIs to align their services to MSMEs accordingly.

NATIONAL FINANCIAL INCLUSION STRATEGY

The goal of Jamaica’s National Financial Inclusion Strategy, 2016-2020, was to ensure that each Jamaican citizen has access to, and is able to make full use of a range of adequate and affordable financial services. The overall strategy outlined primary pillars of focus. One such area - the Responsible Finance Pillar - supports measures that will result in enhanced disclosure by financial institutions. This presents an opportunity for the regulations to provide guidance to MFIs as it relates to incorporating responsible finance within their credit risk assessment policies.

We in the industry are optimistic about the future of the sector and look forward to partnering with other stakeholders for long-term sustainability of the microfinance and MSME sectors, taking into consideration their importance to the growth of Jamaica’s economy.

- Nikisha Walters is the CEO of WILCO Finance Limited (www.wilcofinance.com ) and WILCO Oneczar Limited (www.oneczar.wilcofinance.com). Her career spans over twenty years in the banking and investment sectors. Send feedback to nikisha.walters@wilcofinance.com.