The Development Bank of Jamaica (DBJ) through its Approved Financial Institutions (AFIs) and Micro Finance Institutions (MFIs) will be offering J$45 billion in loans over the next five years to Micro, Small and Medium Enterprises (MSMEs).
The loans will channelled through the DBJ’s redesigned Credit Enhancement Fund (CEF), which was launched on Thursday, November 21 at the AC Marriott hotel in Kingston. Some five billion dollars have been allocated in year one of the programme.
The revamped CEF has been recapitalised through funding from the Inter-American Development Bank in the amount of US$20 million and the World Bank to the tune of US$5 million. The CEF is a partial loan guarantee that helps MSMEs without enough collateral to access loans from financial institutions.
Even though the product existed before, it was recently redesigned by the DBJ to better support AFIs and MFIs in serving the MSME sector. The redesigned CEF enables AFIs and MFIs to accept non-traditional collateral and provide coverage based on the borrower’s character and the future cash flow of the business.
General loans can now receive a maximum of $30 million covering 80 per cent of each loan in guarantee with small loans getting 90 per cent coverage up to a maximum of $10 million. Start-ups get 80 per cent coverage up to a maximum of $5 million.
A number of financial institutions have been slow in coming forward. So far agreements have been signed with Sagicor, which was the first AFI to come on board. Since then JMMB Bank, National Commercial Bank and First Heritage Cooperative Credit Union have signed onto the programme.
Serious interest has been expressed by Scotiabank, First Global, JN Bank and COK Credit Union.
At the launch both DBJ Chairman, Paul B. Scott and Managing Director, Milverton Reynolds made an impassioned appealed to the remaining banks and financial institutions to come onboard in building the channels for the provision of access to credit for the MSME sector. They urged more financial institutions to sign up signalling their participation in the growth and development of the country.
The Jamaica Manufacturers and Exporters Association also signed a Memorandum of Understanding earlier this month with the DBJ to allow its members’ access to the CEF.
The CEF is available to viable enterprises and projects that earn less than $425 million in revenue per annum are tax compliant and have good credit history. The CEF supplements existing collateral, allowing MSMEs to access credit for expansion and reduces the risk for AFIs and MIFs, who are providing the loans.
The fund will be administered through an automated, electronic management information system to facilitate real-time approvals, speedy claims settlements as well as simplify administration and reporting by lending institutions.
The CEF is part of DBJ’s holistic business ecosystem to support the economic growth and development in Jamaica, which also includes vouchers for technical assistance, a venture capital programme and loans to MSMEs for start-ups and expansion.