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Credit squeeze on small businesses - Don't blame us, says DBJ
The Development Bank of Jamaica (DBJ) said it has paid out to intermediary lending institutions about $3 billion to finance business ventures of their small and medium size clients. However, the Small Business Association of Jamaica, (SBAJ), the umbrella organisation representing small businesses, has said the sector is still being starved of development loan funds.
This has prompted Prime Minister Bruce Golding to order the DBJ to undertake an audit of 16 approved financial institutions (AFIs) in a bid to clear whatever bottlenecks now exist.
"The need for funding at all levels is unfathomable," said Edward Chin-Mook, the SBAJ president, who blames high demand and institutional bureaucracy for the negligible impact available funds are having on the productive sector.
Slow take up
Already, the DBJ, pointing to the J$2 billion and another US$5.6 million it disbursed since April 1, 2008, said it is not to be blamed. The state-run wholesale development lender has fingered the commercial banks, where there is a slow take up of DBJ loan funds by small businesses, and said Golding is expected to unveil, in his budget presentation next month, a raft of new measures to make borrowing easier for the end users of small and medium enterprise (SME) credit.
The SBAJ head, too, is critical of the banks on this score.
"Why can one walk into any of those same banks and get millions to purchase a car and not a SME loan?" he asked.
Faced with an economy in freefall and growing howls of protest from the SMEs, the Golding administration will be hard-pressed to find new money to satisfy unmet demands for small business loans.
Milverton Reynolds, managing director at the DBJ, pointed out that monies disbursed have actually gone to projects, many of which are in agriculture. The lion's share of these farm loans, about J$400 million, was lent through the islandwide network of People's Cooperative (PC) banks, he said.
"In agriculture, there is a lot of excitement and we are seeing it in terms of the applications." Reynolds said in putting a positive interpretation on the situation.
Greater dent
He admitted knowledge of the fact that the demand for SME credit outstrips the supply of development funds. He too is banking on at least one new credit facility to come on stream in the new financial year to make a greater dent on the problem.
In the meantime, Chin-Mook is pulling no punches in his critique of the authorities.
"Everybody wants to get into business and do something. They need cash flow support and also to restock. They also need to retool, depending on (the stage) their businesses are at. The government has failed miserably in understanding the demand and in finding adequate sources of delivering supply."
The DBJ credit windows at the various lending institutions include $1 billion from the PetroCaribe small and medium-sized energy fund. However, this facility has hit a snag and is now on hold, stalled, the DBJ said, by the need to create a register of energy auditors and by the absence of a public education programme about the advantages to be gained from overhauling energy infrastructure. So far, two applications - one for $50 million and the other for $20 million - received from tourism interests, the sector targeted for assistance from this money, remain parked with no funds disbursed.
There is another $1 billion available under the DBJ's SME development line of credit; $100 million for physically-challenged entrepreneurs; $250 million for agricultural modernisation and agro-processing; a $50 million fisherman's loan scheme; and $50 million for the dairy sub-sector.
Of the SME line of J$1 billion, $929 million has been allocated to institutions including the EXIM Bank ($100 million), $250 million to Jamaica National, $150 million to Jamaica Business Development Corporation (JBDC) and $150 million to the credit unions.
Specifics on the take-up rate for these loans were not available but, Yvonne Lewars, general manager for Associated Financial Institutions (AFI) relationships at the DBJ, told Wednesday Business that a recent quarrel about the interest spread has been settled by the DBJ, permitting the retail lending institutions to add fees representing charges to "cover their costs".
Most prolific lender
Under the J$250 million agriculture modernisation and agro processing line, 30 loans have been made through the PC banks and the DBJ said it has approved $90 million and disbursed $60 million, whereas $47 million of the dairy money has been paid out to loan applicants.
Lewars confirmed the PC bank as the most prolific lender of DBJ funds and commercial banks as the most conservative.
"While the PC network needs enhancement of human resources and technical help to come to perfection, the DBJ is nevertheless satisfied with its performance. Since April, the PC network has sent to the DBJ for approval, 148 loans totalling J$366 million," she noted.
The PC bank is owned by its members, largely small farmers, and functions as a provident society. It makes most of its loans to the agriculture sector.
Lewars admitted that the PC bank network itself, like commercial banks, has been criticised for requiring too much security.
"They were burned when they took crop lien," she noted. "Now they have gotten procedures which have been updated and approved by their board, and are asking for proper margins. As a bank, you have to do that. As a country, we need to ensure proper access not give away."
Referring to the conservatism of commercial banks, the development banker conceded that these financial institutions are particularly wary of making agricultural loans.
Deficiencies of entities
"Greater access is needed here," she said, even as she blamed the refusal of many loans on what she described as the deficiencies of small and medium-sized entities. The deficiencies she identified included a lack of collateral security, an absence of sophistication in writing business plans, and lack of proper record keeping.
Lewars noted that the DBJ has created alliances with Jamaica Trade and Invest and the JBDC to assist SMEs with overcoming some of their hurdles.
"Many need training in operating a business. Many workshops for SMEs are held at JBDC. They should take advantage," she advised.
avia.ustanny@gleanerjm.com
http://www.jamaica-gleaner.com/glean...business4.html
The Development Bank of Jamaica (DBJ) said it has paid out to intermediary lending institutions about $3 billion to finance business ventures of their small and medium size clients. However, the Small Business Association of Jamaica, (SBAJ), the umbrella organisation representing small businesses, has said the sector is still being starved of development loan funds.
This has prompted Prime Minister Bruce Golding to order the DBJ to undertake an audit of 16 approved financial institutions (AFIs) in a bid to clear whatever bottlenecks now exist.
"The need for funding at all levels is unfathomable," said Edward Chin-Mook, the SBAJ president, who blames high demand and institutional bureaucracy for the negligible impact available funds are having on the productive sector.
Slow take up
Already, the DBJ, pointing to the J$2 billion and another US$5.6 million it disbursed since April 1, 2008, said it is not to be blamed. The state-run wholesale development lender has fingered the commercial banks, where there is a slow take up of DBJ loan funds by small businesses, and said Golding is expected to unveil, in his budget presentation next month, a raft of new measures to make borrowing easier for the end users of small and medium enterprise (SME) credit.
The SBAJ head, too, is critical of the banks on this score.
"Why can one walk into any of those same banks and get millions to purchase a car and not a SME loan?" he asked.
Faced with an economy in freefall and growing howls of protest from the SMEs, the Golding administration will be hard-pressed to find new money to satisfy unmet demands for small business loans.
Milverton Reynolds, managing director at the DBJ, pointed out that monies disbursed have actually gone to projects, many of which are in agriculture. The lion's share of these farm loans, about J$400 million, was lent through the islandwide network of People's Cooperative (PC) banks, he said.
"In agriculture, there is a lot of excitement and we are seeing it in terms of the applications." Reynolds said in putting a positive interpretation on the situation.
Greater dent
He admitted knowledge of the fact that the demand for SME credit outstrips the supply of development funds. He too is banking on at least one new credit facility to come on stream in the new financial year to make a greater dent on the problem.
In the meantime, Chin-Mook is pulling no punches in his critique of the authorities.
"Everybody wants to get into business and do something. They need cash flow support and also to restock. They also need to retool, depending on (the stage) their businesses are at. The government has failed miserably in understanding the demand and in finding adequate sources of delivering supply."
The DBJ credit windows at the various lending institutions include $1 billion from the PetroCaribe small and medium-sized energy fund. However, this facility has hit a snag and is now on hold, stalled, the DBJ said, by the need to create a register of energy auditors and by the absence of a public education programme about the advantages to be gained from overhauling energy infrastructure. So far, two applications - one for $50 million and the other for $20 million - received from tourism interests, the sector targeted for assistance from this money, remain parked with no funds disbursed.
There is another $1 billion available under the DBJ's SME development line of credit; $100 million for physically-challenged entrepreneurs; $250 million for agricultural modernisation and agro-processing; a $50 million fisherman's loan scheme; and $50 million for the dairy sub-sector.
Of the SME line of J$1 billion, $929 million has been allocated to institutions including the EXIM Bank ($100 million), $250 million to Jamaica National, $150 million to Jamaica Business Development Corporation (JBDC) and $150 million to the credit unions.
Specifics on the take-up rate for these loans were not available but, Yvonne Lewars, general manager for Associated Financial Institutions (AFI) relationships at the DBJ, told Wednesday Business that a recent quarrel about the interest spread has been settled by the DBJ, permitting the retail lending institutions to add fees representing charges to "cover their costs".
Most prolific lender
Under the J$250 million agriculture modernisation and agro processing line, 30 loans have been made through the PC banks and the DBJ said it has approved $90 million and disbursed $60 million, whereas $47 million of the dairy money has been paid out to loan applicants.
Lewars confirmed the PC bank as the most prolific lender of DBJ funds and commercial banks as the most conservative.
"While the PC network needs enhancement of human resources and technical help to come to perfection, the DBJ is nevertheless satisfied with its performance. Since April, the PC network has sent to the DBJ for approval, 148 loans totalling J$366 million," she noted.
The PC bank is owned by its members, largely small farmers, and functions as a provident society. It makes most of its loans to the agriculture sector.
Lewars admitted that the PC bank network itself, like commercial banks, has been criticised for requiring too much security.
"They were burned when they took crop lien," she noted. "Now they have gotten procedures which have been updated and approved by their board, and are asking for proper margins. As a bank, you have to do that. As a country, we need to ensure proper access not give away."
Referring to the conservatism of commercial banks, the development banker conceded that these financial institutions are particularly wary of making agricultural loans.
Deficiencies of entities
"Greater access is needed here," she said, even as she blamed the refusal of many loans on what she described as the deficiencies of small and medium-sized entities. The deficiencies she identified included a lack of collateral security, an absence of sophistication in writing business plans, and lack of proper record keeping.
Lewars noted that the DBJ has created alliances with Jamaica Trade and Invest and the JBDC to assist SMEs with overcoming some of their hurdles.
"Many need training in operating a business. Many workshops for SMEs are held at JBDC. They should take advantage," she advised.
avia.ustanny@gleanerjm.com
http://www.jamaica-gleaner.com/glean...business4.html