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Entrepreneurship

An aerial view of New Kingston, Jamaica. (Photo: wikicommons)

How policymakers and banks can nurture the small business sector

An aerial view of New Kingston, Jamaica. (Photo: wikicommons)

Micro, small and medium enterprises (MSMEs) prevail in the labour market, and serve as a significant source of job creation. However, many operate in an informal manner which affects their ability to get assistance and grow.

Many MSMEs in Jamaica form part of the informal economy.

With that in mind, how can the powers that be in -government and the banking sector- create an outreach to the MSME sector, in ways that help them develop and generate better jobs?

Caribbean Business Report turned to Hugh Johnson, president of the Small Business Association of Jamaica (SBAJ), for answers. Johnson’s view is that the government is mainly on the right track with certain policy updates. 

Hugh Johnson (right), president of the Small Business Association of Jamaica with Ryan Parkes, chief of business banking at JN Bank and Floyd Green, minister of state in the Ministry of Industry, Commerce, Agriculture and Fisheries. (Photo: JN Group)

But, he renewed the call for a nano-stock market of the Jamaica Stock Exchange (JSE) while adding that the banking sector should train its officers to assess MSME risk. Additionally, Johnson said the small business sector also needs to do its part to improve compliance in order to grow.

“From the government standpoint, we need more agencies like the Jamaica Business Development Corporation (JBDC) or a fortified JBDC to have a wider coverage in helping with business training because we are accustomed to hustling,” Johnson said. “We, meaning the MSMEs, need to move from that mentality of hustling to set up a structure for the business so that it can grow.”

Johnson said there needs to be more focus on creating a nano market on the Jamaica Stock Exchange.

Currently, the JBDC offers small businesses support in the area of technical services, business advisory services, marketing and research and project management.

According to its website, “The JBDC initiative is a cooperative arrangement among Government Agencies and the private sector, associations, academic and research communities. Over 2,000 Businesses have benefitted from JBDC’s services over the years and many have returned to profit from JBDC’s expertise.”

The JBDC offers small businesses support in the areas of technical services, business advisory services and marketing among others.

Further, Johnson said, “Beyond expanding the services and reach of the JBDC, I want to applaud the government on the soon to be gazetted preferential procurement policy.”  Johnson refers to the Public Procurement (Domestic Margin of Preference) Order, 2019, and The Public Procurement (Set Aside) Order, 2019. In making his presentation to Parliament in October 24, 2019, Minister of Finance and Public Service, Nigel Clarke stated, “In any society, the Government is one of the largest purchasers of goods and services. As a result of that, the policy of the Government towards procurement can have an impact, not only on the cost of those services that the Government procures but on the economic vibrancy of the society.”

The SBAJ president added, “What this means is that there will be a set aside for small businesses in Jamaica. So even if the cost of their service is higher, a Jamaican small business should be the preferred bidder for government contracts. This proposal has already passed through both houses of Government. “

“We continue to push for nano stock exchange which would allow for small operators to access equity funding.”

– President of the Small Business Association of Jamaica, Hugh Johnson

In addition to secured government contracts, Johnson continues to call for a new path way for funding MSME expansion. “We continue to push for nano stock exchange which would allow for small operators to access equity funding.”  The nano – stock market would be a third tier on the JSE that offers shares of companies to the public valued at J$5 million to J$50 million. Currently, the JSE has a main and junior market.

Johnson also called for factoring services offered. “There should be facilities to enable MSMEs to get funding in advance. This factoring service would allow for up to 75 per cent of an invoice amount to be paid up. For example, if an MSME offered the service to supply 10,000 books, it might require financing to get started. Under the preferential procurement policy, the SME would be able to get financing based on the invoice amount. So, the same government entity that contracted the MSME would give this money upfront to the MSME based on the contract amount. This would allow the MSME to get the cash to get the project off the ground.”

Minister of Finance and Public Service, Nigel Clarke, last month spoke to a preferred procurement policy which will benefit MSMEs getting government contracts.

Banking

In regards to the banks, Johnson is of the view that they need to hire better trained personnel to understand the risk profile of SMEs. “I found that most banks are not interested in learning the risks associated with the small business sector. The training needed by the banks, are important because the officers of the financial institution, don’t under the risk associated with an enterprise. They have a checklist and that is what they work with, nothing else. And a lot of times, the enterprise is not able to get funding may very well be viable. So they, the bankers, go with companies that check off the regulations. Further, the application process (needs) to be less intimidatory to the SME. The first thing they give you is a form with forty questions, and that alone is intimidation. If they knew what they were doing, they could ask just five or six questions. People don’t have time to do a lot of paper work and just that alone is a turn off to a business person.”

While acknowledging the challenges faced by the regulatory environment, Johnson says that MSMEs need to do their own work. “Notwithstanding that the government can do more and bankers can learn more, enterprises need to step up to the plate to be honest and straight forward. MSMEs require corporate governance and good accounting practices. If the company has two books and are hiding information, it is deferential to the process of what the government and bankers are trying to achieve.”