Access to Credit for Micro, Small and Medium-sized Enterprises
The ability of entrepreneurs to borrow money on reasonable terms depends on a number of interrelated factors that collectively affect the risks associated with lending, specifically the likelihood of full and timely repayment. These “risk factors” include a mix of public policies, laws and regulations; the local credit culture; the strength of property rights; and the effectiveness of settlement mechanisms such as the enforcement and bankruptcy regimes. Typically, in those jurisdictions in which these and other factors fail to protect lenders (or borrowers), the risk of credit default is high, and this risk is reflected in increased credit costs or a decrease in credit availability.
Further, certain types of borrowers are perceived as posing more than the usual lending risks, and as a consequence usually face significant additional obstacles in obtaining credit. Micro, small and medium-sized enterprises (MSMEs), women, rural borrowers, and other less secure groups typically have limited capital, short entrepreneurial histories, or precarious social situations, conditions which are deemed to present greater risks. The situation is further exacerbated by the fact that lenders often lack the experience and knowledge necessary to understand the needs of small businesses, those based in the agriculture sector in particular.
A long-held objective in Jamaica is to enhance the ability of MSMEs to contribute to the national development goals. This approach, supported by both national and international development organizations, necessarily includes ensuring that MSMEs have access to reasonability priced credit for reasonable durations.
Over the last decade, the Jamaican financial services sector has been struggling to overcome the effects of the country’s deep financial crisis of the late 1990s. During this period, the volume of funds available and the willingness of banks and other financial institutions to lend were severely curtailed. Recently, there have been signs of a new dynamism in the credit industry. Lending has increased substantially and there are more lenders competing for clients. Despite these improvements, however, the great demand for credit in Jamaica’s MSME sector continues to go unmet. According to a recent survey by the Inter-American Development Bank, 42% of small enterprises reported a need for credit, while only 15% said they are able to obtain it. Of those that obtained credit, only one-third received credit from commercial banks.
Micro Business are regarded as one with an annual turnover of less than US$100,000.
Small Business are regarded as one with an annual turnover of between US$100,000 and US$5,000,000 and a staff complement of 1-50 employees.
Medium Size Business are regarded as annual turnover of between US$5,000,000 and US$25,000,000 with a staff complement of between 50-500 employees.