Paul Chin, Manager Investor Relations at DBJ.
The Development Bank of Jamaica (DBJ) says companies and individuals in the entertainment sector can now turn to their affiliated microfinance institutions (MFIs) for loans. This after a revision of the credit conditions.
Paul Chin, manager of investor relations at DBJ, made the announcement on Nov. 16 Jamaica Observer that the loans are available for working capital but also for investments to buy new computers, new sound system equipment, speakers etc. and they also cover debt refinancing.
Launched for the first time in August 2022, the line for the sector has experienced some teething problems. The financing expert said: “We had challenges in designing terms so that they could be beneficial to all parties. The minister announced a certain interest rate, but it was difficult for microfinance institutions to on-lend funds at that rate.
“We had to conduct further discussions with lenders to ensure participation. We have now solved the challenge after finding new conditions. We are still in talks with MFIs [for them to] understand what we are doing in the market and that they fully agree with our proposals.”
Businesses can now borrow up to $10 million. Chin outlined, “If you’ve borrowed $10 million at 10 percent interest for a maximum of five years, you’re paying $225,000 a month.” A maximum of 13 percent is available, but it may be lower depending on your credit rating.
$500 million in grants
The total amount allocated to the sector is US$500 million with a maximum loan amount of US$10 million. Terms include a payment moratorium of up to three months, a maximum loan term of five years, access to DBJ’s CEF or Collateral Guarantee program, and interest rates between 10 and 13 percent.
The use of collateral is common practice. The DBJ Business Unit Manager notes that these rates are below what is currently being offered in the general market.
To date, the DBJ has encountered 10 different types of entertainment stakeholders in its meetings with the Department of Entertainment and Culture, which communicated the needs of the sector.
The entertainment sector project falls under the DBJ’s microfinance lending window, established in 2009 to coordinate all related interventions in the microfinance sector on behalf of the Government of Jamaica (GOJ).
The window aims to provide comprehensive financing to accredited MFIs; strengthening the institutional capacity of MFIs by providing technical assistance; and increase transparency and information about the MFI sector through reporting and compliance with best practices, Chin said.
He explained that since 2009, the development bank has been on-lending to the microfinance sector through accredited institutions, which are now Access Financial Services Limited, C&WJ Co-operative Credit Union Ltd, EduCom Co-operative Credit Union Limited, McKayla Financial Services Limited, COK Sodality Co- operative Credit Union Ltd, BULL Investments Limited, First Heritage Co-operative Credit Union Ltd, JN Bank Small Business Loans, WILCO Finance Limited and LASCO Microfinance Limited.
The DBJ manager explained: “We sell funds through them and these funds are mainly lent to micro and small businesses. The micro-institutions will be asked for collateral, including a variety of items, including furniture, motor vehicles and the assignment of contract proceeds [farmers can ask for funds to be paid directly to the lender for produce] to titles and property.”
The small business can also apply for support under the DBJ’s CEF Guarantee Scheme, which is a fractional loan guarantee facility that provides collateral.
Chin explained, “If you borrow $10 million, you can get collateral support up to 90 percent, or $9 million if your collateral can only support 10 percent of the amount requested.”
The CEF is operated according to a portfolio scheme, he explained: “Institutions do not have to submit individual projects. You go to our electronic platform and upload the project. Once it meets the CEF criteria and they’re ready to use the facility, it’s a green light. We check whether the project meets our criteria.”
In general, the DBJ’s requirement for a debt-to-equity ratio is at least 70:30 for large companies with annual revenues greater than $425 million. These companies can therefore borrow 70 percent of the project costs.
The DBJ finances up to 90 percent of the project costs for micro, small and medium-sized enterprises (MSME). For energy loans, 75 percent of the loan financing is available to large companies and 90 percent to MSMEs.
Micro businesses are companies that generate less than $15 million in annual sales. They can apply for up to 90 percent of project costs, similar to small businesses that make between $15 million and $75 million annually.
Chin pointed out that no special requirements have been developed for creatives. “We have the facility that has recently come out of the COVID lockdown. Once they fit within the specific micro, small or medium sized business boundaries, they can access funds through the microfinance window.”
Loans to the micro sector range from $750,000 to $2.5 million. Where MFIs make small business loans and can also make additional loans, the loans go up to US$5 million in some cases.
Chin told that watch businessr: “Since the microfinance window opened, we’ve made a significant impact on the space. We have lent $12.8 billion to the micro and small sector through these institutions. This has been paid out to over 119,000 companies.”
The largest borrowers were the distribution/commercial sector, accounting for 49 percent of loans; followed by services (restaurants, cookshops, hairdressers, hairdressers) with 22 percent of the loans. A significant amount is also lent to agriculture.
Chin commented, “Most of it is trading and distribution. The average micro-borrower engages in buying and selling, small wholesale businesses, etc., raising working capital to finance the purchase of retail goods. Many manufacturing borrowers are based in agriculture. Others in agriculture need funds to grow cash crops, buy livestock and the like.”
The DBJ unit head said that since 2009: “When we carry out our accreditation of MFIs, we insist that they maintain non-performing loan portfolios of 10 per cent or less. Since 2009 we have lost less than one percent in the portfolio. We are very proud of the line.” Many MFIs collect payments on a weekly basis.
William Foster, a Kingston-based micro-entrepreneur, grew his business with DBJ funds he received through a microfinance institution.