Richard Deane, Business Writer

Backed by the Inter-American Development Bank (IDB), two Jamaican groups have teamed up on a rating system for small and micro businesses in which absent collateral can be used by banks to judge their credit worthiness.

The Institute of Law and Economics (ILE), which has a lead role in a group called the MSME Alliance, will be working with the Technology Innovation Centre at the University of Technology to devise the credit-rating programme.

The project will initially target 20 business operators, including hairdressers and taxi operators, from five trade associations.

The IDB has provided the ILE with a grant of US$150,000, which consultant Carina Cockburn said would be 70 per cent of the funds needed to roll out the Enterprise Wide Risk Management and Financing Programme (ERMFP), launched on Wednesday.

The other 30 per cent will come from the ILE.

access denied

Cockburn said the bank got involved with the programme because of the concern that micro and small businesses without collateral faced serious constraints that denied them access to loan financing from banks and other lending agencies.

The aim of the project will be to create credit ratings that can pass scrutiny by lending agencies, similar to what is done in North America.

"These ratings that have been developed by assessment, will be used by banks for their credit worthiness," Cockburn advised.

Rosalea Hamilton, head of the ILE, said that the first step will be to build awareness about the programme among micro, small and medium enterprises.

To do this, Hamilton said that her team would be holding meetings with five targeted trade associations - Jamaica Gasolene Retailers' Association, Jamaica Wood Products and Furniture Association, Hardware Merchants' Association, The National Council of Taxi Associations and The National Association of Hairdressers and Cosmetologists.

The process will require businesses to disclose information about their operations.

"We hope that they will give us the information because they are not just giving us as individuals but as part of a group," she said.

Having assessed the business processes of the targeted companies, the project team will recommend and implement changes that are required to make them more credit worthy.

This part of the programme will be funded by the ILE, Hamilton said. The programme's impact is to be assessed on two fronts: the securing of financing, and success of the business ventures.

"Success is not measured in just getting the loan," said Hamilton, "but in ensuring that the loan helps them in achieving the desired end."

At some point, the ILE plans to approach regional credit-rating agency CariCRIS to do the ratings of the companies, Hamilton said.

richard.deane@gleanerjm.com