A microcredit institution is a company that is licensed under the Act to provide microcredit services, which include giving loans to individuals and/or Micro, Small & Medium sized Enterprises (MSMEs) or businesses.

MSMEs are defined as follows:

a) A “micro sized enterprise” is a business with total annual sales not exceeding $14,999,000.00

b) A “small enterprise” is a business with total annual sales ranging between $15,000,000.00 and $74,999,000.00

c) A “medium sized enterprise” is a business with total annual sales ranging between $75,000,000.00 and $425,000,000.00

All companies who give loans to individuals and/or MSMEs must be licensed under the Act.

To obtain a licence the microcredit institution must satisfy the Bank of Jamaica (the Regulator), that:

>> It has all policies and systems in placed to comply with the Act.

>> Certain officers of the Company (including directors and substantial shareholders) are fit and proper, i.e., possess the necessary competence, financial soundness, integrity, and honesty.

Effective July 30, 2021, new entrants to the microcredit industry must be licensed before they can provide microcredit services. All pre-existing microcredit institutions must apply for a licence by July 30, 2022.

It is a criminal offence to offer microcredit services without a licence. The Loan Agreement under which a loan is given by an unlicensed company is invalid.

No. The Microcredit Act expressly prohibits the acceptance of deposits from the public.

o Bank of Jamaica – Responsible for general administration of the Act and supervision of microcredit institutions.

o Consumer Affairs Commission - Oversees consumer related matters.

The Act gives microcredit institutions the flexibility to determine their interest rates based on the risks involved and other market factors. There is no limit on the interest rate that can be charged by microcredit institutions.

The Act does not prescribe the interest rates to be charged by microcredit institutions.

The Act outlines that the interest rates charged by microcredit institutions should be based on:

(i) a rate based on market forces; and

(ii) the assessment by the microcredit institution of the risks involved in

providing the loan to the borrower.

The Act stipulates that institutions must provide customers with the effective annual interest rate (EAIR), and where interest rates are being advertised, the EAIR should be the most prominent interest rate advertised.

The effective annual interest rate (EAIR) reflects the actual interest rate to be paid on a loan when considering the effects of compounding and the interest charges and fees over the life of the loan.

Example:

A 30-day loan of $100,000 has a stated interest charge of $2,800.00 and fees of $400.00.

Using the Annual Percentage Rate (APR), the interest rate would be stated as 38.93%, reflecting the cost of the loan.

Using the Effective Annual Interest Rate (EAIR), as required under the new regulations, the interest rate should be stated as 46.68% based on the monthly compounding.

Microcredit institutions can charge reasonable and justifiable processing fees and other fees incurred from enforcing repayment and realization of collateral.

Interest and penalty to be paid on a delinquent account must be calculated on the outstanding balance of the loan and not the original principal.

i. Microcredit institutions must display licenses at a prominent place in their offices

at all branches.

ii. Microcredit institutions must be transparent and must disclose all terms and

conditions in Loan Agreements and other loan documents.

iii. The Loan Agreement must state the interest and fees to be incurred and, how

these fees are calculated.

iv. The interest rate disclosed must be the Effective Annual Interest Rate (“EAIR”),

which shows the actual cost of borrowing.

v. Consumers must be provided with a copy of the Loan Agreement.

vi. Microcredit institutions, their officers and agents are under legal obligation to deal

with their client information as secret and confidential.

vii. Microcredit institutions must never make any misleading, false, or deceptive

promises to customers or potential customers.

viii. Microcredit institutions must never use violence, threat of violence or other

criminal means in an attempt to recover debts.

i. Under the Act, microcredit institutions are now recognized as “financial

institutions”.

ii. As financial institutions, microcredit institutions must meet Anti-Money

Laundering/Combating of the Financing of Terrorism (AML/CFT) requirements.

iii. Consumers must provide Know Your Customer (KYC) Information for all

transactions e.g., proof of address, proof of income, source of funds, identification

etc.

As one of the leading microfinance companies in the sector and a listed company on the Jamaica Stock Exchange, AFS has always followed best practice in corporate governance and management. We remain committed to serving the microcredit sector, in accordance with the provisions of the Act and all other regulations, through its highly competent and committed team. Consumers can expect the usual superior services, with greater innovations tailored to their needs.