Small lenders still unhappy with BOJ licensing regime

As the July deadline for microlenders to be licensed under a new supervisory regime by the Bank of Jamaica (BOJ) looms, the group representing microcredit institutions (MCIs) across the island is looking forward to a sit-down with the Ministry of Finance and the BOJ to discuss what it is describing as “real concerns” that continue to be raised by its members. The issues are believed to relate to the fit and proper rules and are the latest among several matters that have been brought up by the small-scale lenders about the paperwork and operational changes required for their business to get approved for a microcredit licence under the new legal arrangements created by the passing of the Microcredit Act in Parliament last year.

The advocacy committee, which represents members of the two formal microlender organisations, the Jamaica Association of Micro Financing (Jamfin) and the Jamaica Micro Financing Association (JaMFA) has been unhappy about various aspects of the new law since it was proposed some three years ago.

It was feared that parts of legislation would lead to a contraction of the sector, but more controversial issues like a proposed cap on loan interest rates were amended prior to the passage of the act in January 2021, with the aim of licensing and regulating MCIs that provide financing to individuals and micro, small, and medium-sized enterprises.

The microfin associations were encouraged that the efforts to link microloan rates to the Treasury bill rate were eventually stripped from the act following their objection, but other issues like the number of possible offences attached to breaches, remained problematic for the industry. While amendments to the law before its enactment seemed to have quelled some of the disquiet among the microfinancers, on the homestretch to the July 30 deadline for applications to be submitted to the BOJ for licences, the MCIs are airing fresh grouses, some of which people familiar with the discussions say are around “very onerous” and “extensive” fit and proper assessments required for persons who hope to legally operate in the industry.

Chairman of JaMFA, Andrew Mais, would not confirm to the Financial Gleaner information that the discussions being called for with the BOJ and finance ministry centred on the BOJ’s stipulated fit and proper requirements, but on Thursday, he said the concerns if not addressed, could negatively impact the number of operators moving forward with applying for licences.

“It will be a significant decision for players to look at whether or not they continue the process or withdraw from the process, or whether it will make it much more difficult for them to be successful in the application process, even if they were to submit. We would want to see an environment in which our members are given a fair opportunity in that there is a likely chance of successful registration,” Mais said in an interview.

Mais did not disclose how many of JaMFA members had already submitted applications to the BOJ, but said that majority of the members were moving forward with their applications. About 20 members of Jamfin were said to be applying for microcredit licences. Fewer than 100 of the estimated 200 microlenders who operate in Jamaica are members of either association. Many operate informally and below the radar, a situation that the licensing regime is intended to change.

There are indications that the government ministry and the regulator have agreed to meet with the microlenders. While the talks were said to be happening soon, no date was ascertained by the Financial Gleaner. It was also not confirmed whether the meetings would be held with individual MCIs, their respective associations, and with the advocacy group.

“It is a process of engagement with the respective regulatory body and the ministry, and as those conversations unfold and positions are advanced, then the advocacy committee would have a right to review those outcomes and decide on the steps that will be taken before the deadline for registration. In the coming days, those engagement processes will commence,” Mais said.

In a bid to assist microcredit businesses understand and comply with the new law requirement for licensing, the central bank has been hosting a series of online consultations with microlenders. The most recent one was held on March 23 and focused on helping MCIs understand the fit and proper assessment process and completing the required fit and proper personal questionnaire. Another session on prevention of money laundering is scheduled for April 13.

“Whether you are small or larger, every organisation needs to submit that fit and proper personal questionnaire for substantial shareholders and officers. Every organisation needs to submit the police report, overseas and or local, the notorised photo and identification, the due diligence report and so on,” head of department of the fit and proper function at the BOJ, Kevin Jones, said at the forum.

During the session, some microlenders were unsure whether the fit and proper requirements extended to consultants. While responding that they would not, the BOJ officers made clear that under the licensing regime, consultants would not be allowed to operate in substantial management roles or directorships.

“The MCI must ensure that it does not employ a consultant and then have the consultant working in the role of an officer. So if you bring a consultant on, he should be a consultant, not operating as the CEO, not in a CFO or director function. If they are acting in any of those roles that must be assessed, then you may get a letter from us,” Jones said.

karena.bennett@gleanerjm.com