Collateral framework killing businesses

Christopher Serju, Gleaner Writer

A call has been made for a comprehensive reform of the collateral framework, in order to allow micro, small and medium-size businesses, especially those in non-traditional and emerging markets, to access more of the available financing from approved financial institutions and commercial banks.

Nicholas Scott, chairman of the Private Sector Organisation of Jamaica's economic policy committee, told a Gleaner Editors' Forum at the newspaper's North Street, central Kingston, headquarters yesterday that a fixation with the traditional ways of gauging risk assessment could see good business projects falling by the wayside.

Potential problems

Using international recording star Shaggy (Orville Burrell) as an example, he tried to anticipate problems the Jamaican superstar might encounter if he were to pledge his entire music catalogue in seeking a loan from a local bank.

"Part of that so much is not a bank not being able to assess the risk of that cash flow. Part of it is the bank having to go to a regulator and saying, 'Here is a loan' and the regulator saying, 'Well, what do you have as security for that loan? Oh really, you have the portfolio of one of the biggest recording artistes in the country? We have to hold a 100 per cent capital against it'."

Scott then challenged the banking sector to get in touch with the new realities of the global business arena.

However, Courtney Campbell, who was representing the Jamaica Bankers Association, countered that whatever the circumstances, financial institutions cannot go the route of irresponsible lending, and responsible lending calls for good information, the lack of which is a big issue in Jamaica.

"One of the challenges we have now is that the information that the banks have, to put ourselves in a position to make these credit assessments is often very inadequate, weak, non-existent," Campbell argued.

He said Jamaicans need to be taught the discipline of keeping records, as some persons have really good ideas but no financial statements.

"They don't have a sound business plan that you can look at - so that's a big issue," he added.

Meanwhile, Dr Rosalea Hamilton, representing the Micro, Small and Medium-size Enterprises Alliance, supported the view that bankers need to now focus more on the economic potential of intangibles such as the entrepreneurial and creative process.

"Too much of the debate has been around the financial instruments, including interest rates and, as important as that is, I think for the nature and structure of our economy and our firms, we need to place more attention on ... transformation of the goods and services and the business units in which the goods and services are being created," Hamilton said.

Pointing to data which show that 80 per cent of business owners have not passed any exams, she noted that while many of these persons are quite skilled and capable in the area of their substantive businesses, very often they lack the necessary management skills which could determine success or failure.