Jamaica: The Changing Face of Micro Business
Jamaica, March, 09 2014 -
The micro-enterprise sector has been receiving considerable attention as the Government recognises that it can be a key contributor to economic growth through increased employment and the development of export products and services.
The face of the micro-business owner is changing as many persons with university qualifications are experiencing difficulty in finding suitable employment and have turned their attention to accessing new opportunities in the micro sector.
Under the current IMF agreement, Jamaica has been forced to bring into play new regulatory regimes in a number of areas and the micro-enterprise sector has been high on the agenda for streamlining and formalisation.
By far, the most important factor of change is the impending Micro Credit Act. This will create a regulatory framework that is set to change the landscape for MFIs.
The micro-lending sector has been growing rapidly, especially over the last decade. It is estimated that operators across the island number close to 200. It is very difficult to get financial and other data from the majority of these operators as a mere 20 of them operate as exempt under the Moneylending Act. Those operating with this exemption are required to report to the government annually; they conduct business on a more formal basis.
In order to meet the demands of the new regulatory framework, microfinance institutions will have to ensure that best practices are observed in all aspects of their operations. Matters of ownership, directorship, governance, operating practices and sources of capital are all areas to which attention will be turned.
Current operators that may be deficient in these important areas need to take seriously the changing landscape as it will not be business as usual. The pressure will not only come from the steps taken by the Government to bring lending institutions in line, but it will also come from the customers who will have an increasing understanding of what service levels should be and what the risks are in utilising institutions that seek to operate outside of the regulatory framework.
Clearly, it will become increasingly difficult for micro lenders to operate informally and to engage in practices that may be viewed as abusive and unfair to customers, such operators need to pay attention to the writing on the wall and make preparation to meet the required standards for operating.
The Merchant Security Registry recently launched, and the Government's Collateral Registry aim to increase access to loans by making it possible for micro-enterprise borrowers to utilise a wide range of movable collateral items.
The registry allows for the registration and tracking of items such as refrigerators, component sets and computers as security items for loans. It will become more difficult for borrowers to use the same item twice as registration information is available to all lending agencies that wish to utilise it.
The Collateral Registry is new to Jamaica and it will take some time for it to be fully utilised. Considerable public education is needed to increase awareness of this registry among potential borrowers and to build their level of trust in such a system.
Micro insurance is another area that is receiving attention. The Financial Services Commission has announced its intention to regulate the Micro Insurance sector by 2015. With support from the Inter-American Development Bank, a survey is being conducted to identify the needs of the sector and determine the best design and delivery mechanisms for customised insurance products aimed at strengthening the ability of micro enterprises to withstand shocks whether economic, natural or personal.
Countries such as India, South Africa and the Philippines have well-developed micro-insurance services and have demonstrated the value of micro insurance in helping to stabilise businesses and increasing the confidence of operators in their ability grow their businesses.
Having said this, micro insurance is not without risk and this has stymied the growth of the service in many poor countries. The market in Jamaica, notwithstanding, is ripe for such insurance products and it remains to be seen whether the insurance companies will see it as worth their while to develop and market new and innovative micro insurance products.
Micro-lending institutions stand to benefit from the availability of micro- insurance products and strong partnerships can be forged with insurance companies for both the design and delivery of these products as well for the collection of payments and disbursement of benefits.