Minister of State in the Ministry of Industry, Investment and Commerce, Dr. the Hon. Norman Dunn, is encouraging microfinance institutions (MFIs) to get ready for the Microcredit Act, which, he says, will become effective in July this year.
The Microcredit Act 2021, which was passed in January of this year, aims to license and regulate microcredit institutions that provide financing to individuals and micro, small and medium-sized enterprises (MSMEs).
The legislation seeks to, among other things, licence MFIs and bring them under the regulatory supervisions of the Bank of Jamaica (BOJ); protect consumers by discouraging microcredit institutions from lending money at excessive interest rates; outlaw predatory lending practices, threats and intimidation; promote greater transparency through the disclosure of lending rates and other terms of loan products, as well as reduce the risk of the industry being used to facilitate money laundering.
Dr. Dunn, who was addressing a webinar hosted by the Jamaica Association for Micro-Financing (JamFin) on May 13, said that the legislation will formalise MFIs, while creating greater oversight for the industry, and also provide greater credibility to the institutions.
He said that although the legislation was passed in January, the Government has allowed time for entities to get ready.
“There is going to be a commencement date… in July, but you will also have a 12-month transition period within which to submit applications for licensing to the BOJ,” he noted.
Dr. Dunn said that the operational activities required to support the implementation of the new law are already in train, and these include plans for public education and sensitisation on the provisions of the Microcredit Act, the licensing requirements, and the licensing rules and regulations.
The public education will explain the accompanying instructions and fees, criteria for licensing and the applications process; fitness and proprietary information and the assessment process, as well as the legislation’s provisions for anti-money laundering/counterfeiting and financing of terrorism.
Dr. Dunn said that a benefit of the legislation is that it will create a robust environment for the provision of affordable financing to MSMEs in order for the sector to realise its full potential.
He noted that MSMEs, entrepreneurship and enterprise development are at the forefront of the Government’s strategy for growing the economy. There are approximately 425,000 MSMEs in Jamaica accounting for about 90 per cent of the private sector.
“They contributed about $70 billion to taxation at the end of 2020 and MSMEs account for 14 per cent of total sales. Formal MSMEs contribute 3.5 per cent to gross domestic product (GDP) based on a study conducted by the Private Sector Organisation of Jamaica (PSOJ) in 2020,” Dr. Dunn noted.
“Informal and formal contribution to the GDP is estimated to be about 44 per cent and MSMEs accounted for 15 per cent of the total population and 34 per cent of the employed labour force at the end of 2020,” he added.