Dennie Quill, Contributor
THE KEY question that the Fair Trading Commission should answer for Jamaica is this: Are commercial banks and other financial institutions promoting unfair trading practices in respect of interest rate charges?
The agency has been asked by private sector groups to probe the high interest rate regimes of the country's commercial banks in light of the current brouhaha over monetary policy. So far the FTC has not said whether it will take up the challenge. But this agency must be prepared to protect consumers from predatory and exploitative lending practices. In fact, the agency should see it as part of its mandate to examine all forms of credit, including penalties, so that the vulnerable in society can be protected. If this is not within the purview of the agency, then it has fallen way below expectations.
The matter of high interest rates is of grave concern, more so to the small business sector. The small business sector has finally stirred from its slumber and has joined the Jamaica Manufacturers Association and the Jamaica Agricultural Association in demanding a review of the banks' monetary policy. The economists say monetary policy takes time to influence the real economy and because of the time lag, efforts should be preemptive. In an environment of excessive interest rates industry will suffer.
HIGH INTEREST RATES
The truth is people in dire need of cash will pay anything to get their hands on the precious commodity. However, the question that keeps haunting me is how can any business survive when asked to pay interest rates of 60 per cent?
In the days of yore when usury was common, a usurer was condemned and banished from the sight of God. Today commercial interests who charge usurious rates, appear at service club luncheons in their designer suits to announce the whopping profits they are raking in without any hint of modesty. They are roundly applauded by their hosts.
On the subject of loans, data from the Planning Institute of Jamaica indicate that the island's six commercial banks have disbursed $5billion in new loans for the first quarter of 2005. Transport, storage and communication accounted for the bulk of the expansion in private sector loans for the period under review, which grew by 5.2 per cent. Private sector credit in commercial banks stands at $93 billion.
Significantly, loans to the goods-producing and service sectors increased by merely 10 per cent and 4 per cent respectively, while loans for consumption purposes
or personal loans soared to a whopping $34.1 billion or 22 percent higher than the first quarter of 2005. One assumes that credit for motor vehicle purchases figure prominently in that amount.
We cannot build an enterprise society if we do not create the environment for small businesses to flourish. Small to medium size businesses are the heart and soul of entrepreneurship in any country. While big businesses grab the headlines, the real economy is
stirring below them. So where is the voice of small business in our government?
There has to be a blueprint on how to assist entrepreneurship in this country. We could begin by identifying key sectors where genuine assistance has to be applied. Who is listening to the intrepid entrepreneur who has a good idea or product which is in the right phase of development?
MORE FROM PRIVATE SECTOR
For sure, the private sector could do much more to champion the interest of the small business sector. I have just finished reading an article about the BBC's initiative to give investment-ready enterprises the opportunity to pitch their ideals to a panel of millionaires. Called the Dragon's Den Programme, this is the second in the series. In the first instance the panel of five millionaires made substantial investments in worthwhile ventures and they have again signalled their intention to invest more of their money in the phase two.
In the US, an estimated 98 per cent of businesses have less than 100 employees. Small businesses guarantee 50 - 80 per cent new jobs each year. Well aware of the importance of this sector in creating growth, the US government uses set asides and preference programmes to bolster their chances of success. By set asides, contracts with an estimated value of US$25,000 and less than US$100,000 (with certain exceptions) are reserved for small businesses.
I am by no means suggesting that the commercial banks should throw money away. And business people must act responsibly by meeting their debt obligations. However, I have been mulling over an email I got this week which described extortion as the poor man's revolution. This means that when businesses flourish in the face of dire poverty, desperate men will do anything to get some of that money.
Dennie Quill is a veteran journalist who may be reached at denniequill@hotmail.com.
