Jamaica’s microloans market now valued at $293 million

Jamaica’s microcredit market has expanded to J$46 billion (US$293 million), reflecting a growth of over 15 percent compared to the previous year, based on loan balances reported by applicants, according to the Government of Jamaica in its annual report filed with the US Securities and Exchange Commission last month.

In June of last year, the Bank of Jamaica (BOJ) valued the market at J$40 billion (US$244 million), as the central bank began issuing licenses to microfinance institutions, marking the sector’s shift towards full regulatory oversight.

The microcredit market now accounts for 1.7 percent of Jamaica’s gross domestic product (GDP). By comparison, microloans represent approximately 3.5 percent of the J$1.3 trillion (US$8.3 billion) in loan balances held by the country’s eight commercial banks. While there are believed to be over 200 microcredit institutions, the BOJ has so far licensed only 60, according to its website.

Microcredit loan growth, at 15 percent, has outpaced that of commercial banks and credit unions, whose portfolios grew by 11 percent and 9 percent, respectively, year-over-year. The data covers commercial banks up to June and credit unions up to March, with 25 credit unions currently in operation.

Government data reveals that as of March 2024, the BOJ had received 155 applications for microcredit licenses. At that time, 50 licenses had been issued, representing 80 percent of the sector’s loan volume. By September, the number of licensed firms had risen to 60. This marks a significant increase from the seven licenses issued by the end of 2022, which then accounted for half of the market.

Access Financial Services Limited, one of the largest publicly traded microcredit firms, was the first to receive a license under the new BOJ regulatory framework. The company’s loan portfolio is valued at J$5.8 billion (US$37 million).

Microcredit institutions typically provide small loans to micro and small businesses, as well as entrepreneurs who face challenges accessing traditional bank credit. They also offer consumer loans, often to salaried individuals. These personal loans are sometimes referred to as payday loans because repayment is usually linked to the borrower’s paycheck.

Historically operating in an informal environment, the microcredit sector now falls under the BOJ’s regulatory authority, following the introduction of the Microcredit Act in 2021. These regulations aim to enhance transparency, protect consumers, and prevent illicit financial activities.

Microcredit firms are now required to adhere to governance standards, including the separation of microlending activities from other business operations, maintaining accurate records, and fully disclosing loan terms to consumers.

In 2023, the BOJ moved from paper-based oversight to an online risk-based system (ORBS), designed to streamline the assessment of microcredit institutions.

“The ORBS platform enables the BOJ to efficiently assess the risks of numerous microcredit institutions in compliance with national and international anti-money laundering, counterterrorism, and anti-proliferation laws,” the Government of Jamaica stated in its filing. “This system has allowed the BOJ to risk-rate all applicable entities ahead of licensing, and the risk ratings are used to inform the BOJ’s supervisory strategies.”

The BOJ uses a tiered approach to regulating microcredit firms based on the size of their loan portfolios. Tier 1 firms, with loan portfolios under J$75 million (US$478 million), must have at least three board members, and the compliance function may be combined with internal auditing. Tier 2 firms, with loans exceeding J$75 million (US$478 million), require at least five board members, with separate compliance and audit functions. In both tiers, at least one-third of board members must be independent.