Combating Poverty in Jamaica

Miss Ulga Billett

Agenda  Brief overview of MEFL  Analysis of business relationships  How they are doing a better job of addressing poverty in Jamaica Superior business practices Focus on poverty’s root causes Broad reach

An Overview of MEFL  Founded in 1996 as a partnership  Four branches  Over US$7.3 million in loans to over 13,000 clients  Average loan size: US$500  Repayment rate: 96%  Over US$436,000 in savings  67% self-supporting

An Overview of MEFL  Strong values and principles Accountability Sustainability Scalability  Aggressive goals

Relationships Create Competitive Advantages MEFL Scotiabank Micro Enterprises CIDAKRC Social Collateral Interest & Principal Training Loan Compulsory savings Interest payments Credit (eventually) $$$ Promotion of MEFL Identification of borrowers Capital New clients

Causes of Poverty in Jamaica Lack of Education Little Investment High Unemployment High Import Levels Weak Currency High Gov’t Debt Poor Social ProgramsHigh Violence Poverty

How is MEFL Doing a Better Job?  Superior business practices relative to other NGOs  Emphasis on treating the causes of poverty rather than the symptoms  Ability to help a larger number of qualified individuals: Through different product offerings Through geographic reach Through minimal collateral requirements

Superior Business Practices Careful selection of loan recipients Superior delinquent accounts processes Loan officer incentive pay system Exceptionally low delinquency rates: 2-5%, compared to as high as 38% for other MFI’s in Jamaica

Treat Causes Not Symptoms Many other NGO’s only focus on alleviating poverty’s effects MEFL has loan products to address the most important causes of poverty: Lack of education resulting in a cycle of violence Dependency on imports leading to high food prices and weak currency

Addressing Education & Violence Education Assistance Loan for Employed Individuals Increased Levels of Education Increased Human Capital/Curbed Violence Better Business Environment & Large Companies More Willing to Invest

Addressing Imports & Food Prices Manufacturing/Production Loans and Agri-Business Loans Local Food Production Reducing Imports Stabilized Currency/Lower Food Costs Better Business Environment & Large Companies More Willing to Invest

Addressing Imports & Food Prices Trade Services Loans Increased Bulk Purchases Economies of Scale Lower Food Prices & Higher Living Standards

Geographic & Product Reach  3 types of existing loans Each targets different needs and clients  Offices in major cities and all three counties in Jamaica Locations where poverty and violence rates are highest  Future plans for expansion Refinement of existing loans Adapting to demand in rural economies

The Nature of Collateral  Jamaica’s economy is largely informal Jamaicans may not be able to post collateral for loans  MEFL has no collateral requirement, but still has higher repayment rates than other MFIs

Conclusion  MEFL creates competitive advantage in several ways Relationships with Scotiabank and government agencies Superior business practices Focus on poverty’s root causes Access to diverse client base  MEFL will continue to improve and help alleviate Jamaican poverty

Strengths  Management experience (business, social, run like a bank)  Effective loan collection processes  Access to capital (Scotiabank, CIDA are historically very committed)  Wide reach in urban areas (where most of the population is; established offices in each county, repayments can be made at Scotiabank scattered throughout the country)  Strong presence in and understanding of clients’ communities Weaknesses  Loan products very rigid (all members in a group loan must take out identical loan sizes, other restrictions)  Still below established goals  Still not fully self-supporting  Infrastructure and information systems must be expanded and improved to maintain competitive advantage as MEFI grows into more rural areas Opportunities  Expanding into more parishes and rural areas  Could attract private, for-profit investment to increase scale (particularly after MEFL becomes self-supporting)  Could develop more loan products to reach more clients Threats  Natural disasters  Resistance from violent gangs (in Afghanistan, a head of a microfinance institute was murdered)  Competition  Government subsidies (government handouts make people both less dependent on MFIs and less responsible with funds)