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The Development Bank of Jamaica on Oxford Road in Kingston (File photo)

DBJ to provide supply chain financing for J’can MSMEs

The Development Bank of Jamaica on Oxford Road in Kingston (File photo)

In an effort to resolve working capital issues for micro, small and medium-sized enterprises (MSMEs) amid the economic downturn and supply disruptions caused by the novel coronavirus pandemic, the Development Bank of Jamaica will begin to provide supply chain financing (SCF) for the sector.

DBJ’s manager of investor relationships Paul Chin made the disclosure at the Caribbean Business Enablers Network’s MSME Day commemoration event.

In this 2017 file photo, general manager, Microfinance Services Division at the Development Bank of Jamaica (DBJ) Paul Chin, addresses the DBJ’s Small and Medium-size Enterprise (SME) Summit, at the Knutsford Court Hotel in New Kingston. (Photo: JIS)

This type of supply chain financing, also known as reverse factoring, is an accounts receivable financing mechanism, where a financial institution will make early payments to suppliers on behalf of buyers at a discount. He, however, did not say at what discount the accounts receivables will be financed, but added that “when the product is launched, that information will be included, but commercial banks are entitled to and will set their own discounts and fees, as is customary.”

SCF enables suppliers to larger customers to receive faster payment of invoices raised via a finance facility that is supported by using the strength of the buyer’s business as security for the lender.

Chin told the Jamaica Observer that this product offering is expected to change the dynamics as it relates to improving cash flows for MSMEs.

“…MSMEs can now access short-term financing without having to put up collateral. You have all these receivables on the road and instead of waiting 30-40 days, and I have even heard of cases of them waiting 60-90 days to be paid, [they] have an opportunity to now be paid in a much shorter period of time”

“[SCF] involves three participants — a large buyer of goods, a financial institution, and a supplier. When suppliers supply goods, they normally give the buyers credit terms and that can range from 30 days and beyond,” Chin explained.

“…MSMEs can now access short-term financing without having to put up collateral. You have all these receivables on the road and instead of waiting 30-40 days, and I have even heard of cases of them waiting 60-90 days to be paid, [they] have an opportunity to now be paid in a much shorter period of time,” he continued.

During the pandemic, MSMEs face increasing pressure to meet short-term financing needs, can have large amount of money tied up in supply chains and often wait long periods for payment, further resulting in limited access to external financing. Working capital is employed to purchase the input materials for production, to finance inventory, and to bridge the time until customers pay their invoices.

An overhead view of a section of New Kingston in Jamaica (File photo)

He added, “It also allows you as a small business owner to benefit from the credit worthiness of the large buyers. So we don’t ask suppliers to provide any collateral for credit assessment because the risk that the institution is taking is on the large buyer”.

Chin further indicated that this product is expected to be launched within this financial year.

“We have acquired an electronic platform on which the programme will operate. It has been tested and we are currently in negotiations with commercial banks which are going through their own due diligence processes to be able to utilise the platform,” Chin said.

Supply chain financing is an addition to the suite of products that the DBJ offers to small businesses to assist in their development.