POLICIES AND INSTITUTIONS

SUPPORTING SMALL AND MEDIUM

SCALE ENTERPRISES (SMEs) IN
JAMAICA

POLICIES AND INSTITUTIONS

SUPPORTING SMALL AND MEDIUM SCALE
ENTERPRISES (SMEs) IN JAMAICA

REPORT SUBMITTED TO THE UNITED NATIONS

ECONOMIC COMMISSION ON LATIN AMERICA
AND THE CARIBBEAN (UNECLAC)

CLAREMONT KIRTON AND DAVID TENNANT

February 16, 2008

DEFINITION OF SMALL AND MEDIUM SCALE

ENTERPRISES (SMEs) IN JAMAICA

Limited availability of data on criteria used to measure size of

business.
Inability to distinguish between micro, small and medium scale
enterprises.
Ignore distinction between micro, small and medium scale enterpises.
Data not collected on regular basis.

DEFINITION OF SMALL AND MEDIUM

SCALE ENTERPRISES (SMEs) IN JAMAICA
Ministry of Industry, Commerce and Technology (MICT)
Paper (2001) - characteristics of small businesses:
- employment of 4 to 10 persons (medium scale >10 to 49
persons)
Average loan size of approximately J$450,000 (US$10,000)
Total assets, excluding land and buildings, approximately J$4.5m
(US$100,000)
Usually operate formally
Typically can provide collateral for loans
Very sensitive to high interest rates.

DEFINITION OF SMALL AND MEDIUM

SCALE ENTERPRISES (SMEs) IN JAMAICA
The Private Sector Organization of Jamaica (PSOJ):
Micro enterprises - gross sales revenues of up to J$10
million (US$160,000).
Small enterprises - gross revenues between J$11million
(US$176,000) and J$30 million (US$480,000).
Medium scale enterprises - gross revenues between J$30
million (US$480,000) and J$99 million (US$1.59 million).
Large scale enterprises - gross revenues of over J$100
million (US$1.60 million).

Jamaica: data
Most recently available and relatively comprehensive data
on small scale enterprises in Jamaica:
Consultancy report prepared for Inter American
Development Bank (IADB) by the Group of Analysis for
Development (GRADE) in 2004.

Jamaica: Macroeconomic background

The GRADE survey:
sample of 1226 firms - 37% micro enterprises (2 4 workers) and
11% small scale (5 20 workers).
average micro-entrepreneur monthly income J$57,000 (US$ 979);
small scale firm J$900,000 (US$15,470).
over 1/2 small scale firms located in large metropolitan areas of
Jamaica which are the capital city Kingston (9.3%), St. Andrew the major metropolitan parish (37.1%), and St. Catherine - the
largest parish (24.3%).

Jamaica: Macroeconomic background

As reported by GRADE (2004):
40% of the small enterprises involved in wholesale and
retail trading
another 26% engaged in education, social work and
other personal services
manufacturing and hotels and restaurants and
transport, storage and communications less important
accounting for 9%, 9% and 7%, respectively
almost four-fifths (79%) were males
average age of the small entrepreneur was 46 years
Over two-thirds (72%) of these business persons reported
that they are married or in a common law relationship

Jamaica: Macroeconomic background

GRADE Report (2004):
small firms sell over 4/5 (83.5%) of their commodities and
services to individual customers locally, with only 14% of
their customers being other firms.
small firms identify their main competitors as other small
enterprises (57%) and micro-enterprises (35%).
large percentage (79%) of competitors are located in the
same area where the small firm operates, representing
strong competitive markets among these enterprises.

Jamaica: Macroeconomic background

The GRADE (2004) survey on finance:
About (23%) of small firms report having no bank account.
Under 1/5 (18%) of small firms applied for loans in year preceding
survey, and 15% obtained such loans.
Contrast with about 1/3 (33.3%) who stated that they needed loans.
Just over two-thirds (66.7%) of loans received by small firms were
obtained through commercial banks; family/friends and informal
financial institutions accounted for almost 20% of loans obtained.
Most (60%) of these loans used for working capital purposes, with
30% allocated to purchases of fixed assets.
38% of small firms report defaulting on loan repayments, with almost
two-thirds (62.5%) citing cash flow problems as the reason.

Strategic Priorities of the GOJ

Vision 2030 seeks to place Jamaica on a path towards
achieving developed country status by 2030.
the plan is based on a comprehensive vision to make
Jamaica the place of choice to live, work, raise families,
and do business.
Stated guiding principle is to put people at the center of
Jamaicas transformation.

Strategic Priorities of the GOJ

GOJ has not yet finalized Vision 2030 process; strategic
policy in which SMEs now operates taken from National
Industrial Policy (NIP), was developed in 1996.
Main focus of NIP:
1. macroeconomic policy
2. industrial strategy
3. social policy
4. and environmental policy.

Strategic Priorities of the GOJ

The GOJs strategies in key areas affecting
SME development are highlighted under the
following headings:
1. Macroeconomic Policies and Outlook
2. Industrial and Trade Policies

INSTRUMENTS AND INSTITUTIONS

USED TO SUPPORT SME
DEVELOMENT IN JAMAICA
GOJ National Industrial Policy (NIP) 1996 notes that:
the development process in Jamaica is likely to be driven
significantly by the activities of small business. The
National Industrial Policy seeks to affirm the importance of
this sector of the economy and to integrate the productive
elements of the sector into the overall development
process. The key concern is to enhance the ability of the
sector to contribute to the national development goals of
growth with social equity and conservation of the
environment.

Background
NIP identified planned initiatives that would address challenges faced by
micro and small enterprises arising particularly from their small scale,
limited capital and skills. Planned initiatives included:
Incorporating MSEs in the national export promotion drive by
increasing their productivity and efficiency, upgrading skills and
management capabilities, improving access to credit, providing
marketing support, and simplifying the process of business
registration;
Developing targeted industrial space for small businesses;
Encouraging the efforts to link small businesses and larger firms
through sub-contracting relationships;
Increasing the emphasis given to training in entrepreneurship and
small business management; and
Establishing a Micro and Small Enterprise Coordinating Bureau to
provide strategic direction to the sectors development.

Background
These initiatives not effectively implemented by end 2006.
Government noted that major challenges facing Jamaican
MSEs were:
un-competitiveness
lack of access to credit
high unit costs of production and poor quality products
low levels of technology and technical skills
weak business and management skills
financial market perceived risk of MSEs and lack of
appropriate collateral.

Background
GoJ has not formulated a comprehensive document
outlining a revised plan for the further development of the
sector.
Stand-alone small business plan is currently being
developed by the Ministry responsible for SMEs.
Policy currently being prepared.

INSTRUMENTS/INSTITUTIONS USED TO
SUPPORT JAMAICAN SMEs
Will now highlight and assess GOJs support to SMEs
through these initiatives and related institutional
arrangements.
Initiatives will be outlined in accordance with the
governments strategic focus areas of:
Financial services
Business development services
Institutional support.

Financial services - wholesale

Development Bank of Jamaica (DBJ)
Provides loans to small, medium, and large scale
businesses through approved financial institutions (AFIs)
including credit unions, commercial banks and the NDFJ.
Provides assistance to wide ranging productive
enterprises in various sectors, including the broiler
industry, block making, agriculture, agro-industry, and
the music industry.
Does not lend directly to the promoter of the project;
typically channels funds through Approved Financial
Institutions (AFIs) which provide the initial credit
evaluation and the loan supervision.

Financial services - wholesale

The National Export-Import Bank Small Business Discount Facility
(EX-IM SBDF)
Wholesales funds for disbursement to micro and small enterprises
which produce for domestic and/or export markets
Funds disbursed through commercial banks and other AFIs.
Considers direct applications for loans from small businesses on a
case-by-case basis
Funded areas of trade, services, manufacturing and mining
Reduced interest rates offered to encourage increased numbers of
micro and small businesses to utilize the credit offered.
Interest rates around 12% per annum on the reducing balance.

Maximum loan amounts J$7.5m (US$100,000) (for non-exporting

entities and J$10m (US$133,000) (for exporting entities). Maximum
repayment period is four years, inclusive of a moratorium of up to six
months on principal payment.

Financial services - wholesale

Government of Jamaica/Trafalgar Development Bank/Pan
Caribbean Financial Services Ltd.(PCFSL) Micro and Small
Enterprise Credit Scheme
Under GOJ/EU Small and Micro Enterprise Scheme, GOJ
appoints a wholesale agent to administer Scheme
Current wholesaling agent is Pan Caribbean Financial Services
Limited (PCFSL)
GOJ provides funds to PCFSL for wholesaling to accredited
participating credit institutions (PCIs) such as National
Development Foundation of Jamaica (NDFJ) and the credit
unions
PCIs lend the funds to the final borrowers

Financial services - wholesale

The Government of Jamaica / USAID / Jamaica National
Small Business Loans Limited (JNSBL
JNSBL is a non-profit subsidiary of Jamaica National
Building Society (JNBS)
JNBS operates Representative Offices in UK, USA and
Canada.
Wholesales funds and lends directly to micro and small
enterprises
Loan amounts range from J$5,000 to J$300,000, and
repayment periods range from 10 to 50 weeks
Interest rate typically 1% per week

Financial services - retail

The National Insurance Fund Credit Facility for Small and Medium
Enterprises (NIF/CF/SME)
NIF/CF/SME is credit facility established by GOJ in 2007 to provide
support to small and medium sized enterprises.
Wholesaling scheme - funds are disbursed to participating financial
institutions (PFIs) for on-lending to SMEs.
funds made available to PFIs at 4% on the reducing balance
maximum retail rate set at 10% on reducing balance
Loan limit for any one enterprise is J$5m, and maximum repayment
period is four years.
Loans are made to existing enterprises with an established business
performance history, and new businesses will receive funding only if
stringent requirements are met.

Financial services - retail

The Self-Start Fund (SSF)
Created in 1983 - main objective to promote entrepreneurship and
employment opportunities in the private sector.
Retail institution lending directly to both microenterprises and small
businesses.
Initially financed by USAID CBI funds reflow; received loans from
GOJ/ Government of the Netherlands agreement, as well as from
Micro Investment Development Agency (MIDA).
Loans granted to applicants whose assets, excluding land and
buildings, do not exceed J$1,000,000 (US$13,000).
Loans made for purpose of acquiring basic tools, implements of trade,
equipment, raw material and services.
Offers small business loans with limit of J$1,500,000 (US$20,000)
and maximum term of three years.

Financial services - retail

The National Development Foundation of Jamaica
(NDFJ)
Major retailer of funds to micro and small entrepreneurs
involved in activities such as manufacturing, agriculture
and services.
Loan amounts for manufacturing projects range from
J$20,000 to J$3.5m.
Interest rates range from 33% to 34%.

Financial services - retail

Credit Union League
Credit Unions serve as important private sector retailers of
funds to micro and small enterprises.
COK Credit Union one of the largest credit unions has
played a prominent role in this respect, but the role played
by other institutions in the League should not be ignored.

Financial services - retail

National Commercial Bank (NCB) SME Financial Services
In 2004 NCB SME Financial Services launched a loan facility which
issues loans to small and medium sized enterprises.
The receivables financing facility is a line of unsecured credit for the
financing of working capital requirements of SMEs pending collection
of outstanding receivables from approved paying companies
allows the small businesses to fill cash flow gaps by providing
immediate cash amounting to a maximum of 75% of the
receivable
Amounts range from J$100,000 (US$2,000) to J$10m
(US$150,000), interest rate ranging from 21% (or 11% on USD
loans) for NCB depositors, and 22% (or 12% on USD loans) for
businesses that do not have their main operating account with
NCB.

Business Development Services (BDS)

Jamaica Business Development Center (JBDC)
JBDC provide business and technical support to MSMEs
in various areas of their business development
Facilitating business start-ups, consultancy services for
established business enterprises
Over 4,000 businesses request various services supplied
by JBDC.

Business Development Services (BDS)

The Jamaica Business Development Center (JBDC)
The support provided to SMEs by JBDC can be
disaggregated into four categories:

Information
Training
Marketing assistance
Technical assistance.

It seeks to fulfill its mission through various activities,

including:
Organizing training and sensitization sessions on various aspects
of business development
Providing technical support and business development services
Providing strategic coordination of the support systems and
institutions aimed at strengthening MSMEs

Business Development Services (BDS)

EU/GOJ Private Sector Development Programme (PSDP)
The PSDP seeks to serve MSMEs by:
Financing activities that foster improved competitiveness through
cost sharing grants of up to J$3.6m;
Providing direct support programmes to individual firms or groups
of businesses through market penetration activities, export
centers, cluster and sector initiatives, and consortia business
development services;
Providing financial planning advice through a corporate finance
broker, created to enhance MSMEs success in securing
appropriate and affordable financing; and
Facilitating research and lobby initiatives to reduce bottlenecks
impeding the development of small businesses in Jamaica (MICT
2007).

Business Development Services (BDS)

BSJ/JBDC Product Development for SMEs Programme
The Bureau of Standards Jamaica (BSJ) and the JBDC have signed a
memorandum of understanding which seeks to provide technical
assistance to small and medium-sized enterprises (SMEs) through
the provision of information and technical support to comply with the
required standards for products, packaging and labeling (MICT
2006).
The achievements under this programme include:
Development of manufacturing instructions, quality assurance
procedures and a technical information manual in respect of to herbal
tea blends;
Development and production for commercial sale of mini replicas of
the statue located at the Emancipation Park; and
Labeling of food products such as gizzadas, coconut drops and grater
cakes (MICT 2006).

Business Development Services (BDS)

The Jamaica Exporters Association (JEA) Business
Technology Services Programme (Biz Tech)
This World Bank funded project was aimed at allowing the
JEA to provide technical support to its members. The
objectives included:
Providing technical support to 34 SMEs;
Providing IT support to firms in the process of
computerization;
Providing market outlook and commercial investment
reports;
Conducting HACCP quality and productivity training;
Undertaking business planning and IT interventions; and
Providing relevant training to JEA staff.

Institutional Support
A challenge faced by retailers of credit to SMEs is the fact that
funds borrowed through Government or donor-supported
programmes are traditionally viewed as soft loans.
They are consequently plagued by high levels of arrears and
non-repayment.
This not only affects the sustainability of these programmes,
but is also a major deterrent to the inflow of new funds to the
sector.
The fundamental problem of increasing SMEs access to credit
will therefore not be solved until the creditworthiness of SME
borrowers can be properly assessed.
A number of the retail lending agencies and the MICT have
thus spearheaded the preparatory work involved in creating a
specialist MSE credit bureau.

Evaluation of effectiveness and efficiency

of instruments and institutions used to
support SME Development
Quantity/cost of funds available:
* Real Value of funds disbursed by wholesale agencies
increased significantly over review period.
Fluctuations due to variability in supply of funds.
Supply of funds by retailers relative to wholesalers
experienced slow growth over review period.
SMEs receiving less funds (in real terms) from
retailers
Retailing activities increasingly becoming dominated
by one lender.

Evaluation of effectiveness and efficiency

of instruments and institutions used to
support SME Development
Sustainability of credit schemes:
Supply of funds erratic concerns about
sustainability.
Increased flows of wholesale funds have not been
available to SMEs concerns here about efficiency of
retail process
Need to identify stable funding sources

Evaluation of effectiveness and efficiency

of instruments and institutions used to
support SME Development
Number of loans issued:
Significant increases in number of loans issued number of
loans more than doubled.
Dominance of one financial institution

Assessment of the Performance of

Financing Initiatives
Number of Jobs Created
Data indicate that between 2002 and 2005, 43,839 new
temporary and permanent jobs were created through
these agencies.
Most jobs were created through the USAID/ Union Bank/
JNSBL credit facility (average over 7,000 per year
between 2002 and 2005)
Two other agencies each facilitated the creation of more
than 1,000 jobs per annum during the period.

Assessment of the Performance of

Financing Initiatives
Efficiency of the Job Creation Process

In order for one job to be created, loans with average real values
ranging from J$44,174 (US$883) to J$226,372 (US$4527) must be
disbursed.
The Development Bank of Jamaica (DBJ) and the National
Development Foundation of Jamaica (NDFJ) were the least cost
effective in this respect, with average values of loans disbursed per
job created of J$226,372 (US$4527) and J$141,850(US$2837),
respectively.
The Self Start Fund was most cost effective at J$44,174 (US$883)
per job.

Assessment of the Performance of

Financing Initiatives
Average Size of Loans Issued

Credit unions - average loan size of $74,409 (US$1488) in 2001, and

the USAID/ Union Bank/ JNSBL credit facility had average loan sizes
ranging from J$28,940 (US$5788) in 2001 to J$22,390 (US$4478) in
2003.
The Self Start Fund similarly had an average loan size of
$129,151.30 (US$2583) in 2001, which exceeded the typical upper
bound for microenterprises, but which was much smaller than the
normal loan size for small businesses.
The average loan size of the Self Start Fund declined in 2002 and
2003 (to J$59,750 (US$1195) and J$72,391 (US$1448), respectively)
to fall within the typical value of loans for microenterprises.
The National Development Foundation of Jamaica (NDFJ), had an
average loan size of J$527,108 (US$10542) in 2003 which is just
above the J$450,000 (US$9000) benchmark highlighted for loans to
small businesses.

Assessment of the Performance of

Financing Initiatives
Cost of Funds
The figures indicate that although the Jamaican lending
rate decreased significantly from 39.83% in 1996 to
17.64% in 2006, it was significantly higher than that of a
sample of CARICOM countries in the years reviewed.
In 2006, commercial bank lending rates for Barbados,
Trinidad and Guyana were 10.29%, 10.92% and 14.54%,
respectively. For the decade from 1996 to 2006, the
Jamaican rate averaged 24.16%, more than doubling that
of Barbados (9.41%), and almost doubling that of Trinidad
(13.69%).

Assessment of the Performance of

Financing Initiatives
Cost of Funds
At the wholesaling level in Jamaica, funds are provided at
subsidized interest rates.
The Development Bank of Jamaica lends to AFIs at 10%, and
mandates that these funds cannot be on-lent at more than 13%
and that the rates should be fixed for the life of the loan.
National Insurance Fund Credit Facility for SMEs lends to retailers
at 4%, and sets the maximum retail rate at 10%.

The GOJ/PCFSL Micro and Small Enterprise Credit

Scheme is more flexible, as funds are lent to retailers at
below market rates, but the rates at which funds are on
lent to small businesses are not prescribed.

Assessment of the Performance of BDS

Initiatives
Accessibility of BDS Programmes
Accessibility is most reliably assessed by examining the
number of firms assisted as a proportion of the total
number of firms in the SME sector.
Half (50.4%) of the small businesses surveyed did not know any
BDS providers, and only 26.7% used their services (IDB study)
Most popular are private companies (28.1%) and independent
professionals (26.7%).
Public sector providers of BDS are mentioned far less frequently,
with all categories of public providers (including public
universities) being identified by a total of 8.1% of the respondents.

Assessment of the Performance of BDS

Initiatives
Usefulness of BDS Initiatives
Small businesses surveyed indicate that 77% did not keep simple
accounting records,
79% did not have any management plans for their business,
75% did not spend any time making improvements to their business or
developing new products or services,
75% had not executed a quality control of their products and services,
and 79% did not train their workers.

Majority of small businesses surveyed know about (45.9%) and use

(24.4%) primarily those services related to accounting and taxes.
Very low levels of knowledge and usage of BDS in the areas of
management (23.7% and 2.2%, respectively), training (24.4% and
2.2%, respectively), innovation and technology (23% and 1.5%,
respectively), and marketing (25.2% and 1.5%, respectively).

Doing business in Jamaica

World Bank Data (2007):

Time period (workdays) taken to establish a business,

Jamaica is worse than international best practice country
(Australia 2 days) as it requires at least 8 days to
establish a business.
Jamaica ranks higher than most other Caribbean countries which
require, on average, at least, 12 days.

Doing business in Jamaica

In terms of dealing with licences:

In the best practice economies like South Korea, this procedure takes 34
days;
in Jamaica, the number of days required is 236, making the country the
worst in the Caribbean.

Registering property in Jamaica takes, on average, 54 days with the

Jamaican situation worsening recently:
Time period for Jamaica is higher than most Caribbean countries and
way above international best practice of 2 days (New Zealand).

Doing business in Jamaica

Obtaining credit
Over the last year, Jamaicas ranking in this area has declined. In
the absence of credit bureaux in Jamaica which significantly limit
credit information sharing, the country has a very low rating in this
area.

Protection of investors
Jamaicas score of 5.3 is lower than the Caribbean average of 6.3
(from 0 to 10, with higher values indicating better investor
protection),
Recent decline in this index for Jamaica in 2008 over 2007.

Tax payment ratings have worsened for Jamaica, with

Jamaica having one of the highest tax rates (51.3%) in
the Caribbean.

Financing of SMEs
Senior officials in Government expressed concerns with
the regularity of funds supplied to wholesaling agencies
by GOJ and donor agencies.
Concern is substantiated by the large annual fluctuations
in real funds disbursed by wholesalers, many of which
disburse absolutely no funds in some years.
Caused by supply-side constraints than by deficiencies in
demand for funds.

Financing of SMEs
Private commercial banks and NBFIs should consider
extending their role from simply wholesaling or retailing
funds provided by the government or donor agencies, to
independently providing loanable funds.
Policy proposal which GOJ can implement is to fast-track
establishment of the MSME Credit Bureau;
conceptualized, but not created.
Credit Bureaux are critical since they can reduce information
asymmetry constraints and may impact both small and medium
scale firms positively.

Financing of SMEs
The efficiency and efficacy of the entire lending process is
area of concern, especially role of retailers.
Some specific proposals are presented as follows:
intensive research on operations of wholesaling and retailing
agencies is required; emphasis to be placed on the identification
of bottlenecks and cost excesses.
qualifying conditions for loans from different types of retailing
agencies (private, public and NGO) should be compared to
determine whether unduly onerous qualifying conditions are
restricting the disbursement of funds to SMEs.
research results to be used to guide GOJ in its plan to develop
clear directives with respect to governing the operations of
wholesaling and retailing agencies, and formulate parameters for
interactions with small businesses or stakeholders.

Financing of SMEs
The cost of funds available to SMEs is a major challenge,
yet to be adequately addressed by GOJ.
Financing initiatives outlined above are useful as they allow SMEs
to access funds at lower than the market rate.
Even though the rates offered by the retailing agencies may be
lower than the Jamaican market rate, they are still higher than
lending rates charges in other Caribbean countries.
Context of CSME, this may place SMEs at a disadvantage in the
regional market.
When CARICOM Financial Services Agreement and CARICOM
Investment Code become fully operational, access to funds
across the region will increase, thus allowing SMEs to access the
cheapest sources of funds.

Provision of Business Development

Services to SMEs
Many Jamaican SMEs are either not aware of the BDS
services available to them, or are not aware as to how
such services can benefit their businesses.
SMEs are also concerned about the cost of BDS.
Provision of subsidized BDS programmes very important.
Very few SMEs aware of these programmes.

Provision of Business Development

Services to SMEs

To address this, the GOJ (possibly with the assistance of

donor funding) should:
Develop a central depository of information on available services,
which is easily accessible to SMEs island-wide. JBDCs mobile
business clinic idea can be further developed to disseminate
information through seminars and discussion forums at the
community level
Carefully designed public education programme should be
launched
Greater coordination of government/donor sponsored BDS
should be carefully considered. Although a number of agencies
have taken measures to reduce the duplication of effort, some
initiatives are not included in these measures. Greater
coordination could facilitate more focused and strategic
interventions in key areas.

Provision of Business Development

Services to SMEs

Most Jamaican SMEs only use BDS in areas that are absolutely
needed to meet legal requirements, which in turn constrains growth
and development of SMEs, as internal capacities and competitive
advantages are not built.
GOJ interventions must not simply respond to extant demand, but
should strategically lead the market in areas critical to SME
development. Consideration must be given not only to the breadth of
easily accessible services, but also to the depth of the services that
are offered.
If most of the services or training programmes are offered at only a
basic level, this will impede the competitiveness of Jamaican SMEs
on the international market, as their efficiency and the quality of their
products will not be comparable with the more advanced countries.

Provision of Business Development

Services to SMEs

Small and medium enterprises seldom have the capacity

to influence policy making and as such, there is a critical
role for SMEs to develop effective representative
organizations.
These organizations play a key role in areas such as advocacy,
research and information sharing, links with various organizations, and policy dialogue and implementation.

Measures to strengthen the stakeholders in the Small

Business Association of Jamaica (SBAJ) and encourage
increased membership should be investigated.
Consider to begiven to measures to incentivize
membership ; for example, providing tax benefits or
special tax compliance measures to members of the
SBAJ or other clusters of small businesses.