Micro Finance....Macro Benefits

[Don1]

COK launches loan facility in Trench Town

By Julian Richardson
Sunday, May 03, 2009
COK Cooperative Credit Union has partnered with Dr Henley Morgan's Agency for Inner City Renewal (AIR) in offering a micro financing loan facility to the residents of the wider Trench Town area in Kingston.
Borrowers must be of ages 16 to 60 years old, and own and operate a business or live within the area which includes Arnett Gardens, Trench Town, Craig Town, No Mans Land and Jones Town. First time borrowers can access a maximum of $70,000 while persons borrowing for a third time or more can access up to $150,000. Borrowers have a maximum period of 12 months to repay the loans, which are unsecured and attract interest rates of 35 per cent per annum.
Arnett gardens resident Keisha Samuels (centre) makes a point in discussion with independent business and management consultant Dr Henley Morgan and COK general manager Jacqueline Mighty. The occasion was COK's launch of a micro financing loan facility in Trench Town last week. (Photo: Karl McLarty)
COK General Manager Jacqueline Mighty told Sunday Finance that the company have always been looking at ways to get into micro-financing to assist persons from the inner city who generally find it difficult to access loans. She said the company saw the perfect opportunity through AIR, the brainchild of independent business and management consultant Dr Henley Morgan, who has a wealth of experience in the inner city.
"As a social partner, we want economic development and growth for Jamaica and the micro-financing, we believe, is the platform that is going to jump-start economic growth," said Mighty, at the launch of the facility in Trench town last week. "We have a structured programme where we can partner with somebody who can help us to identify the persons and assist them in developing business plans; and somebody who can work with them to ensure that they pay on time."
Said Mighty of the 35 per cent interest charge: "It might sound high but you have to look at the risk that we have....We get the funding but we also pay persons involved at the different levels for collections and for putting in the infrastructure."
COK sourced the funds for the facility through grants from the Jamaica Social Investment Fund (JSIF).
Residents from the community complained to Sunday Finance about the obstacles they generally face in accessing loans, and openly expressed gratitude for the initiative.
"When you go to (traditional financial institutions) you have to have this and you have to have that," said Keisha Samuels, who operates her own beauty supplies shop in the Arnett Gardens community. "It seems like it's really just COK who is looking out for people of the inner city."

[Islandman]

I am a big believer in micro-finance, it can make a big difference in the lives of small business in the developing world.

I would encourage anybody interested in getting involved in this area to research the story of Nobel Prize winner Muhammad Yunus, founder of Grammeen Bank in Bangladesh. The kinds of businesses that have benefitted from this kind of funding are diverse, from the lady cooking food on the roadside to the man in the remote village with cell phones and minutes that he re-sells to other villagers. All providing a USEFUL service to community although they are frequently seen as "hustlers" by some who would rather they be working in the fields as 19th century peasants.

And yes , what the article says about the seemingly high interest rates is generally true for micro-finance loans. There is a lot more overhead in servicing one hundred $500 loans than there is in servicing one $50K loan. But in many countries and communities a 35% pa interest rate is a blessing to people who cannot get loans from traditional banks and have to rely on local money sharks who charge 35% per month with your young daughter as collateral!

[Gamma]

the big concern for me given the jamaican context stems from the inability of say JPS to collect money or disconnect illegal hookups in some of these communities.

relevance you ask? well one should not ignore the "want sup'm fi nutten" or "tek whey" mentality. it is a tough one, and certainly the issue raised above is borderline discriminatory based on where one lives, but as a business man making a business decision, it is a factor to be considered in respect of likelihood of repayment of the loan.

[Assasin]

good points by both of you.

My gut feelings tell me Dr. Morgan know the community well and he may start out with people he can trust. I hope it work.

I however share both you and Islandman concerns.

[Islandman]

Well a key factor in this kind of business is involvement of local people in the communities you are serving so you actually know the people and they are not just statistics, and Henley Morgan is certainly as qualified a person as I can think of in that regard.

One of the big surprises about micro-finance loans is that the delinquency rate on the loans are extremely low, much lower in fact than consumer loans to middle class people. And typically when there are defaults or late payments it is because of unexpected factors like a natural disaster or civil unrest like what happened in Kenya in thier last election. Most people take thier loans and the opportunity it provides them VERY seriously.

I can tell you that in my involvement in lending through kiva.org, I have made about 20 loans so far over a period of about 18 months and all of them to low income individuals in Africa and not a single default.

I know we might say Jamaica people are a different kettle of fish , but in this regard I really don't think they are. It might be worth mentioning too though, that the vast majority fo micro-loans are to women. The Grameen Bank people say that thier experience is that wherever they operate, the women are much more interested in this kind of program than the men.