Microcredit Act feeding underground economy, says O’Meally Nelson Loop Jamaica

Black Immigrant Daily News

The micro-lending industry will likely see a culture of non-compliance evolving as many firms struggle to meet the requirements for operation under the rigour of the Microcredit Act, Jamaica Association of Micro Financing (Jamfin) chairman Blossom O’Meally-Nelson, says.

O’Meally-Nelson in making her contribution at the recent Anti-Money Laundering/Counter Financing of Terrorism Conference hosted by the Jamaica Institute of Financial Services (JIFS) and the Jamaica Bankers Association (JBA), told the gathering that the “pressure” now placed on micro-lenders is also having the unintended consequence of fostering an underground economy.

The Anti-Money Laundering/Counter Financing of Terrorism Conference was held in a hybrid format from October 11 to 12.

Microcredit institutions (MCIs) have long complained about the fit and proper rules and the paperwork as well as operational changes required for their business to get approved for a microcredit licence under the new legal arrangements created by the passing of the Microcredit Act in Parliament last year.

“The Micro-Credit Act has been done and has created a whole heap of pressure for micro-finance institutions because the Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT) framework is not fully in place,” she said.

She continued: “I think we are going to create the greatest non-compliance in history. We are feeding the undergrown economy.”

She said the standards for operations have been set so high under the Microcredit Act that many operators will not be able to attain the level needed to be licensed.

“There is a strong feeling that this is done to cull the sector and reduce the sector to a few people…it is very hard, for them to attain the standards,” she said.

Many MCIs also operate informally and the strictures of the Microcredit Act have discouraged them from seeking to be licensed, O’Meally- Nelson said.

“We see a goodly portion of customers disappearing with all those other microfinance institutions that are not applying for registration,” she said.

The absence of a national identification system that would foster proper due diligence checks of customers also poses challenges for the industry.

“These customers operate mainly in the cash economy. These people don’t have any bank accounts. The majority of loans that you make are personal [and] this makes the sector vulnerable,” she said.

“Even if a person has a business… they don’t have any structure… [so] you have to lend the individual, you cannot lend to the business,” she said.

She reasoned that the pushback from citizens who think the National Identification System (NIDS) is aimed at capturing them in the tax bracket may be reduced if Jamaicans are incentivized to register for the NIDS

“If you get a National ID, you get free hospital care,” she suggested.

Conversely, “why would you get a National ID if you have to pay taxes, your children can’t go to school and you don’t have anything [financially]? What’s the point?” she reasoned.

The Jamfin chairman also suggested that the public be educated about Know Your Customer (KYC) standards to aid in their understanding of financial processes.

“The public doesn’t know what we mean by KYC, neither do they care because they need to eat today,” she said suggesting the ability of the customer to secure a consumer loan supersedes their concern for the process.

“So, our financial literacy programme has to be within the context that something is going to [benefit] them,” she said.

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