Before microcredit law, the lending of money to individuals was governed by the law on money lending and the law on banking services. The law on the loan of money required that any loan agreement be evidenced by a written memorandum signed by the borrower containing all the terms of the contract and in particular the date of the loan and the annual interest rate. The Money Lending Act primarily regulated non-commercial money lending activities generally taking the form of casual agreements between private entities and individuals who did not receive money from one bank or another. registered financial institution.
What are microcredit services?
The Microcredit Law was passed earlier this year and came into force on July 30, 2021. Under the Microcredit Law, a “microcredit service” is defined as:
(i) providing credit facilities to individuals or MSMEs or both; and
(ii) the provision of business advisory services to individuals or MSMEs or both;
An MSME is a micro-enterprise (an enterprise whose total annual turnover does not exceed USD 14,999,000), a small enterprise (an enterprise whose total annual turnover is between USD 15,000,000 and 74 $999,000) or a medium-sized company (a company with total annual sales between $75,000,000 and $425,000,000). Therefore, the Microcredit Law regulates the lending of money to small businesses and individuals.
Under the law, there is a one-year adjustment period from July 30, 2021 to allow all existing lenders to comply with the new regime. This means that all lenders will need to obtain a license to provide microcredit services from the Bank of Jamaica by July 30, 2022, or they will find all their loan agreements entered into after that date to be unenforceable. However, contracts concluded before July 30, 2021 will remain enforceable. In addition, a person found providing microcredit services without a license will be guilty of an offense and subject to a fine or imprisonment.
Obtain a license
An application for a license to operate a microcredit institution must be submitted to the Supervisor (the Governor of the Bank of Jamaica) in the prescribed form together with proof that the applicant is a registered company in Jamaica and copies of the incorporation documents. Therefore, it appears that only companies incorporated in Jamaica or foreign companies registered in Jamaica can obtain a license under the Microcredit Act. All officers and significant shareholders of a company wishing to obtain a license must pass the fitness and repute test described in the regulations.
A licensee also has the following ongoing obligations: separate their microcredit activity from any other company activity, prominently display their license or a certified copy in each office of the company, keep accurate records of the activity (to be kept for seven years), keeping all information relating to the licensee’s clients secret and confidential and ensuring that the annual audited financial statements are carried out by an external auditor and filed with the certification body. regulations.
All loan agreements issued by a licensee must also meet all requirements imposed by microcredit law. Some of the requirements for loan agreements imposed by law include: using plain language, ensuring that all interest rates are expressed in annual percentage rate or effective annual percentage rate expressed in percentages and dollars, stating repayment terms before the stipulated term of the loan, and expressly mentioning any penalties applicable in the event of default.
Certain lenders and agreements are exempt from the provisions of the Microcredit Act, including:
1.) Occasional loans made on a non-commercial basis between private parties or any other lending of money subject to the Money Lending Act.
2.) Registered Friendly Societies
3.) Approved construction companies
4.) Registered cooperative societies
5.) Any body corporate empowered by an Act of Parliament to lend money
6.) Any business licensed under the Banking Services Act
7.) Any insurance company that lends money as part of its business
8.) Any entity that extends credit to its customers for the supply of goods and services
9.) A licensee under the Securities Act
10.) A Registered Superannuation Fund or Pension Plan
11.) Lenders who offer credit facilities to high net worth individuals
The Microcredit Act has created space for the provision of commercial lending services by people who are not banks or building societies. This should result in increased access to finance for entrepreneurs and small business owners and allow consumers who are not normally eligible for a loan from a bank to legally obtain loans from microcredit service providers. approved. Under the Microcredit Act, consumers will be able to be sure that they are dealing with competent people and will benefit from all loan agreements presented in plain and easy to understand language. Right off the bat, consumers will also know the exact dollar amount to be paid as interest without having to worry about doing complex calculations for themselves. Requiring microcredit facility providers to obtain a license will ensure that the poorest people have access to reliable, safe and secure loans to help them meet their needs and grow their businesses.
Luke Phillips is a lawyer with Myers, Fletcher and Gordon and a member of the firm’s commercial department. He can be contacted at [email protected] or through the company’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.