It is estimated that the microfinance sector, or MFIs, accounts for approximately $20 billion of loans in circulation.
The key financing role played by these loan providers over the last three decades has been grossly understated.
Some regard the sector as a haven for ‘loan sharks’ and operations that abuse their customers by charging inordinately high interest rates and by carrying out draconian collections practices. This negative perception is so entrenched that the preamble to the draft Micro Credit Act reflected this bias.
This is an unfair and uninformed assessment which is based largely on isolated incidents. The fact is the majority of MFIs pursue best practices and attract multiple repeat customers.
Microfinance institutions are an important part of the growing financial space in Jamaica and the public has come to recognise that the sector boasts strong companies that have established themselves as sound financial institutions pursuing best practices according to international standards.
Two of the larger MFIs are listed on the Jamaica Stock Exchange.
Microfinancing is a highly competitive business and managing a microfinance company is no walk in the park, it demands constant attention and close and continuous scrutiny of loan performance. These companies do not take deposits, and unlike commercial banks they do not have the cushion of income derived from investing depositors’ money. They face constantly a high exposure to loan loss