Microfinance institutions’ Christmas loan specials are still rolling out this year, but borrowers, especially those seeking personal credit, should expect less than half the value of the specials that were in vogue last year.
Small businesses can make a deal, but must be prepared to put assets as collateral.
The more conservative shift in the otherwise easy-going, high-risk payday loan market comes as microlenders across Jamaica adopt measures to minimize the risk of repayment failures, amid the pandemic and the the economic crisis it pushed back.
Small businesses and jobs have been hit hard during the spread of the coronavirus – areas microlenders need to do well to keep loan demand, stable repayments, and business flowing through their doors. For example, unemployment fell five double-digit points to 12.6 percent in the latest employment survey in July; and the economy has shrunk about 10% since the pandemic.
Year after year, special Christmas loans from microfinance companies have included deals of up to $ 5 million, sometimes more, with repayment periods of around five years. But as COVID-19 uncertainties persist, some lenders have reduced loan values by up to 70% and shortened the repayment period for borrowers.
Loan rates, however, are flat.
“The COVID-19 pandemic is having a devastating effect on microfinance institutions due to its impact on the economy, especially the MSME sectors. Microfinance companies are experiencing a sharp increase in delinquencies, in the order of 60 to 70%, and some are on the verge of bankruptcy, ”said Raymond Gabbidon, executive director of the Jamaica Microfinancing Association, or JamFA, in an interview. with the Financial Gleaner.
“Personal loans, especially in the tourism sector, have been hit hard by the cuts and general slowdown in the hospitality sectors, and the agricultural sector has suffered a double blow from COVID-19 and recent heavy rains.” , did he declare.
Always in search of profit
Yet while moving much more cautiously, microlenders are still looking to lure borrowers into one of the most lucrative business times of the year, in the hopes of picking up some of the business that has evaporated since. emergence of COVID in Jamaica in March.
Big lenders like Lasco Microfinance are taking bets on what is now classified as a “safe” business with its special “Chrismus Come Early” loan, largely aimed at smaller operators in the grocery and manufacturing sectors.
Loans to business owners are repayable over periods ranging from three months to two years.
“We have a campaign underway, but we’ve cut back considerably. We have reduced the amount we lend and we are promoting the aspect of a shorter loan cycle, ”said Marshalee Burrell-Johnson, Director of Product and Sales at Lasco Microfinance.
“We believe that the special offers we have now will allow our customers to get back on their feet for the coming year without putting them under undue pressure from an extended repayment period,” she said.
New Era Financing, a small finance house, has waived its processing fees on loans since the onset of COVID-19 and, in December, is offering clients lower monthly payments and extensions of up to six months on repayments of ready.
The microlender, which mainly does interim financing, has not tightened its lending policies, according to deputy managing director Andrew Mais, who said the measures New Era employed before COVID were already strong.
“We haven’t taken a holistic approach because of COVID. Yes, we are cautious, but taking a more optimistic approach than with careful monitoring and working with clients on a one-to-one basis we are likely to see another side of things, ”Mais said.
“And they value trust because no one wants to feel left out of the financial system,” he said.
Because of the risk that microlenders take on, they charge high rates of up to about 70 percent, and beyond, for the loans they distribute.
Other credit institutions that sell loans to micro and small businesses within the formal financial system, such as credit unions as well as banks, offer much lower rates, but their loans are much more difficult to obtain and require collateral that a typical payday borrower usually does not have.
This Christmas, some are looking to meet the market halfway. Community & Workers of Jamaica Co-operative Credit Union and JN Bank, for example, are both willing to offer their clients up to $ 5 million in unsecured loans.
“Reducing interest rates is obviously important to customers, so we continue to offer our unsecured loan offerings of up to $ 5 million at 15% interest rates and secured loans as well. down than 6%, ”said Carlton, CEO of Community & Workers. Barclay.
However, new measures introduced by Community & Workers of Jamaica to keep delinquency rates low could cause the institution to lend most of this money to people employed in government services – the sector least affected by the AIDS epidemic. coronavirus regarding job cuts.
“We have a lot of exposure to the tourism sector, and that has been hit the hardest. What we’ve been able to do is, on an individual basis, negotiate a moratorium on most of them, refinance loans where we can, and some loans have gone really bad, ”Barclay said.
“With all of this, we have managed to keep our arrears low. Hopefully, as things gradually return to normal, we can once again fully lend to this sector, ”he said.
Community & Workers of Jamaica, which is the largest credit union by assets, also promoted a special car loan that gives customers a nine-month moratorium on repayments. The special, which runs until the first quarter of next year, has been widely picked up by public sector workers.
JN Bank was not specific on the sectors it targets through the “We take your projects personally” campaign it launched on Wednesday, but notes that the promotion allows customers to borrow up to $ 5 million. dollars for home improvement, travel, gifts or debt consolidation. , without any guarantee required.