Small and micro lending enterprises advertising their services without a licence from the Bank of Jamaica (BOJ) have been cautioned to get their affairs in order or risk being penalised by the law.
As the economy contracts due to higher inflation and rising interest rates, many Jamaicans are turning to small lenders for financing, despite the onerous rates they charge.
Many of the traditional banks are becoming even more conservative after being hit by fair value losses and even more delinquencies on their loan books, creating opportunities for new players who charge exorbitant rates.
This has not gone unnoticed by the Bank of Jamaica, which has taken a judicious approach, allowing small and micro lenders to move from the unregulated to the regulated space in a reasonable period of time, rather than taking a more draconian stance.
Speaking at a Bank of Jamaica press briefing, Governor of the Central Bank Richard Byles said five such entities have now been granted licences.
“We have been awarding approval licences to some of these micro-lending companies and there are a lot of them – 118, I understand. The aim is to have about 50 per cent of the assets of that industry approved by December, which will be a mix of the small and large players. That will cover half of the industry by way of asset value.”
Dr Jide Lewis, deputy governor of the BOJ (Financial Institutions Supervisory Division), added that the Government approved legislation in July of last year and gave a 12-month period of transition for existing operators who applied to the BOJ for a licence.
“What we have indicated is that if you were an existing player in the space and had applied and the Bank acknowledged your application, you could continue to do business. We have written forbearance letters to those individuals. From a pragmatic perspective there is no intention to disrupt the course of business as we migrate from an unregulated space to a regulated space,” said Lewis.
“We have made it clear that if you are a new player in the sector and not made your application to the Bank, you are required to desist from advertising or offering your services. We have written letters in the press indicating to people that if they are found to be conducting business in the sector without being licensed then the prosecutions will follow.”
The Micro Credit Act is definitive on this. If any such entity is caught, the fine is J$3 million and or six months imprisonment. Lewis declared it is in in everyone’s interest to work with the process and to apply and provide the necessary information in order that the Bank of Jamaica can do its due diligence.
The deputy governor continued: “We appreciate coming out from a large unregulated space into a regulated space can be a difficult transition. Many of them are not used to having to treat with a regulator or meet certain requirements. I believe in the medium to long term it will be a win-win situation.
“What it basically means is that there’s an additional party that can vouch that these entities are operating above board, providing services that the public wants, that there is redress where there is dissatisfaction from the members of the public. We have been reaching out with sensitisation sessions which have been well attended.
“We will be less intrusive with the smaller players and more intrusive with the larger one. Once the law is in place, if you are performing activities that require a licence, it doesn’t allow for much discretion on our part.”