Jamaican commercial banks do not serve the needs

Published: Friday August 1, 2008

Industry and Commerce Minister, Karl Samuda, has slammed local commercial banks for their continued refusal to accommodate the needs of the island's small business people, instead offering "mere tokenism" to micro, small and medium-sized business enterprises.

"Our traditional financial insitutions have repeatedly failed the local small businesses sector. what they have offered is mere tokenism," Samuda charged, adding that sector was an integral part of any growth of the economy.

Margin gatherers

He accused the banks of being mere margin gatherers instead of seeking to address the fundamental issues of risk management in the small business sector.

According to Samuda, J$2.4 billion was made available to financial insitutions by government over a year ago for 10 per cent loans to small businesses, but banks were refusing to on-lend the funds citing high risks in the sector.

"Nobody wants it at that rate because they say the risk is too great," said Samuda.

He was speaking Wednesday at a micro, small and medium-sized enterprise (MSME) workshop convened by the Institute of Law and Economics and held at the University of Technology.

"There is money around but the system excludes you from it because we say that the money must not go to the user for more than 10 per cent," Samuda told participants in the workshop.

He charged that the J$2.4 billion was made available by government to assist in the development of the MSME productive sector at a maximum 10 per cent interest rate. One billion of the total was earmarked for energy-related businesses, but after more than a year banks have on-lent only J$400 million.

"These funds have been sitting available to you for all of last year," said Samuda. "I still have $2 billion left," he added.

Instead, said Samuda, "human capital was languishing in pain because they cannot get capital".

The industry minister contended that traditional lending institutions refused to take up the offer, because they would earn only three per cent on the loans offered to the small business sector.

Government, he said, provided the funds at seven per cent to the banks, with a stipulation that it is on-lent at no more than 10 per cent.

"We borrow at four per cent and offer it to the banks at seven," Samuda explained.

"They won't touch it because we say that the ceiling is 10 per cent," he said.

Special small business loans offered by some financial institutions attract a one per cent, per week interest rate, but Samuda argued that such arrangements could not drive production.

He said that operating at such high rates would only be feasible for trading, however, that could not grow the economy. "People in manufacturing cannot operate with those rates," said Samuda.


Source: Jamaica Observer
http://www.jamaicaobserver.com/magazines/Business/html/20080801T010000-0500_138517_OBS_JAMAICAN_COMMERCIAL_BANKS_DO_NOT_SERVE_THE_NEEDS_OF_SMALL_BUSINESS_PEOPLE___SAMUDA_.asp