BOJ assailed as 'restrictive and obstructionist'... As credit unions ramp up push for rule changes

Melvin Edwards, head of the Caribbean Confederation of Credit Unions, has described the Bank of Jamaica (BOJ), the regulator to which community lenders will soon have to answer, as intractable and difficult to negotiate with, even while advising the movement to abandon high-interest models and seek new ways to survive contracting markets.

Regulations are about to laid in Parliament making BOJ's oversight of credit unions official, even while the movement has tried without success to dilute five of the standards being imposed on them, including capitalisation and unsecured loans.

Edwards described the new standards as "restrictive and disabling dangers in the unilateral, bank-like BOJ draft regulations."

At the same time, as the credit unions are marshalling their lobby to drum concessions from the central bank, an umbrella group for small and micro businesses is taking sides with them, saying the limits on unsecured loans will likely deny firms access to credit from a steady source of funding.

"Over the 70 years of the credit unions' existence, many individuals who do not have 'appropriate collateral' such as houses, land titles, motor vehicles or large bank deposits, have relied on unsecured credit from credit unions to finance their micro, small or medium-size enterprises," said MSME Alliance president Dr Rosalea Hamilton in a statement issued Tuesday.

The proposed regulations "will compound the problem of inadequate access to financing and exacerbate the likelihood of business failure," she said.

The new rules restrict unsecured loans to 10 per cent of the total portfolio.

lobbying the Government

Edwards, who is also the immediate past chairman of the World Council of Credit Unions (WOCCU), as well as the regional representative on that body's board, said Saturday that the Caribbean Confederation has been lobbying the Jamaican Government since 2008 on behalf of lenders and against the BOJ over the pending new regulatory regime.

Neither central bank nor ministry officials were immediately available for comment.

The Jamaica Cooperative Credit Union League has been at the table with the central bank even longer - since 1999 - and was given a new mandate by members in April to persist with his push for additional rule changes.

The movement is arguing that the restrictions will make it harder for credit unions to survive and for its target market to borrow.

"The steadfast refusal by the BOJ to budge or to engage the Jamaica Co-operative Credit Union League in meaningful consultation is alarming behaviour, unbecoming of a proposed competent authority," said Edwards while addressing the 50th anniversary banquet of the C&WJ Cooperative Credit Union in Kingston.

"Obstructionist regulations being unilaterally introduced by the BOJ under the BOJ Act are ill-advised, irrelevant, designed to strangle and therefore constitute the single biggest threat facing the Caribbean Region's strongest national credit union movement," he said.

Noting that the sector was not without the need for effective regulation, Edwards said credit unions are asking the minister of finance to redefine minimum start-up capital requirements; remove the "artificial and excessive" restrictions on unsecured, saying the PEARLS Standard for charging-off bad and doubtful loans against the bottom line of each credit union is already a strict deterrent in place against loan losses; and institute a more practicable time period for adjusting balance sheets to meet new capital requirements.

The movement is also proposing that dormant funds in their accounts not be subject to the same rules as other financial houses, which pays over the unclaimed funds to government after 15 years, but be "placed to grow capital" in a reserve fund.

"The minister should ensure that such rules are not hostile to encouraging financial access and financial empowerment by the same poor and vulnerable and disadvantaged masses that successive governments have been encouraging credit unions and other cooperatives to sustain," said Edwards.

The WOCCU is an international trade association and development agency for credit unions with 54,000 credit unions in 97 countries.

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