MSMEs in Action
MSMEs in the Region
MSMEs in the Caribbean and Latin America
According to IDB Invest, Micro, small and medium-sized enterprises (MSMEs) represent the lion’s share of businesses and employment in Latin America and the Caribbean and are among the strongest drivers of economic development and innovation.
Despite their potential, MSMEs in the region tend to stay small and are significantly less productive than large firms. Small businesses consistently cite a lack of access to finance as one of the main barriers to growth, one that prevents them from making the investments required to increase their productivity and competitiveness, enter new markets and expand their workforce.
MSMEs represent 99 percent of businesses in Latin America and the Caribbean and 67 percent of employment, according to the Organisation for Economic Co-operation and Development (OECD). Yet they account for only a third of GDP—half the average seen in OECD countries.
In Latin America and the Caribbean, MSMEs have a high level of informality, a high failure rate (particularly in their first years of operation) and a low level of internationalization. And they tend to be less productive than similar-sized businesses in other developing and developed countries.
At the heart of the problem is a lack of access to adequate financing. MSMEs need options to finance working capital, exports and imports, as well as innovation activities that can improve their productivity and promote growth. Without financing options, they are more exposed to economic shocks, and they may be unable to purchase inventory or make timely payments to suppliers or employees and may be constrained in making capital investments or adopting new technology.
MSMEs in Latin America and the Caribbean receive only 12 percent of total credit, according to the OECD—less than half the share received by MSMEs in OECD countries (25 percent). Only 17 percent of SMEs in the region use bank credit to finance short-term working capital, compared with 29 percent of large companies. This disparity is equally apparent for longer-term financing options: 22 percent of MSMEs use bank credit for fixed asset financing, compared with 34 percent for larger companies.
One factor that prevents MSMEs in the region from obtaining adequate financing is information asymmetry. Firms asking for financing understand their own operations and repayment capacity, but they may not have the kinds of formal records that financial institutions require. As a result, lenders may have a hard time distinguishing between profitable or unprofitable projects and assessing risks on a case-by-case basis. Since MSMEs are riskier on average than larger firms, financial institutions tend to treat them all as risky and offer them less credit than they might if they had complete information.
Economies of scale also work against MSMEs. For a financial institution, the costs of scrutinizing and evaluating a potential loan are proportionally higher for a smaller loan than for a larger one. Similarly, MSMEs are proportionally more expensive to treat in the case of a default because the costs associated with liquidation proceedings do not decrease even though the loan amounts may be smaller. That means investors and lenders typically have a greater incentive to focus on larger
The Latin American and Caribbean region has about 27.5 million MSMEs, of which some 26.2 million are micro enterprises. The overall funding gap for MSMEs is estimated to be $1.2 trillion. In 2017, this gap was the second largest in the world, smaller only than that of the East Asia region.(IDB Invest)
Official MSMEs Policy in Jamaica
The following section is derived from Jamaica's Policy Document on MSMEs (2018)
MSMEs create and retain wealth, generate employment, and provide the support for private sector growth and expansion. It is estimated that classified tax-paying MSMEs account for 97.6% of all classified and registered enterprises in Jamaica (TAJ, 2015). When this is combined with over 412,000 own-account-workers (STATIN, 2015) it becomes evident that MSMEs are a significant portion of the Jamaican economy
The challenges facing MSMEs in Jamaica are both internal and external to their operations. Many businesses are characterized by entrepreneurs that lack marketing capacity, operational capacity, business leadership, financial acumen, communication skills, and are generally unfamiliar with available business support services. There are some issues which can be considered as fundamental or foundation issues
and ‘getting these right’ will significantly improve the outlook for MSME development.
One such issue is the prevalence of business informality among Jamaican MSMEs. This continues to pose a specific challenge to the growth and development of the sector. Informal operators are obliged to remain invisible to the legal system and these enterprises face restrictions in carrying out business activities and this, in turn, stymies growth. Informality limits access to support services, financing as well as certain markets. It is, therefore, important that GoJ eventually seek to have a precise definition of formality in the Jamaican context and that simplified processes are developed to make registration attractive to MSMEs, particularly the ‘micro’ category.
Difficulties in accessing capital and attendant issues such as the availability of suitable and adequate collateral for borrowing; the higher (than prevailing) interest rates and the ability of the firm itself to manage the financing are often cited as fundamental challenges to small business development. In addition, training and other forms of business development support for the sector need greater coordination; and there continues to be a low capacity for innovation and low utilization of technology among Jamaican MSME; factors which also impact productivity and competitiveness in the sector.
It is imperative that the impediments to the formation, sustainable growth and development of businesses in the MSME sector be systematically reduced. The sustainability of MSMEs necessitates that the business model which underpins their operations be supported by a culture of entrepreneurship, which sees creativity, innovation, risk-taking and wealth accumulation as fundamental tenets. Equally important is a legal, regulatory and institutional framework that supports business growth and development, by limiting the cost and time for complying with regulatory requirements and allows for reorganization in cases of insolvency.
The updated Policy clarifies that MSMEs are multi-sectoral and enterprises in any economic sector that falls with the definition threshold for turnover would be categorized as an MSME. This includes the agricultural sector. The Rural Agriculture Development Authority (RADA) has 161,504 farmers on its registration database; of this total 30.4% are female. The infusion of commercial business principles with modern farming techniques is an important policy principle for the development of agricultural MSMEs. See More
MSMEs Financing in Jamaica
MSMEs in the Jamaica and the rest of the Caribbean have difficulties accessing adequate financing. In Jamaica there are a number of MSME financing institutions. These institutions provide financing usually above the official prevailing market rate.
The DBJ has lent over $11.9 billion to Micro Finance Institutions (MFI) since the Micro Finance Window was established in 2009.
The Bank is cognizant of the role that micro, small and medium-sized enterprises (MSMEs) contribute to the development and stimulation of the Jamaican economy and continues to provide wholesale funding to 12 MFIs for on-lending to entrepreneurs.
The current accredited MFI are:
- Access Financial Services Limited
- Bull Investments Limited
- C&WJ Co-operative Credit Union Limited
- COK Sodality Co-operative Credit Union Limited
- EduCom Co-operative Credit Union Limited
- First Heritage Co-operative Credit Union Limited
- First Union Financial Company Limited
- JN Small Business Loans Limited
- LASCO Microfinance Limited
- McKayla Financial Services Limited
- Monaire Financial Services Limited
- Wilco Finance Limited
The DBJ has been designated as the Government of Jamaica’s lead agency for co-ordination of all related MFI industry interventions. In this regard the DBJ is assisting micro finance institutions to achieve maturity and maximum outreach by facilitating access to capital and the professionalization of operations.
National People’s Cooperative Bank of Jamaica Limited (NPCB)
The National People’s Cooperative Bank of Jamaica Limited (NPCB) is a community based savings and loans institution registered under the Agricultural Credit Board Act as an Agricultural Loan Society. The NPCB is regulated and monitored by the Agricultural Credit Board (AC Board) and is licenced by the Department of Cooperatives and Friendly Societies, under the Industrial and Provident Societies Act.
The Development Bank of Jamaica (DBJ) has maintained a longstanding relationship with the NPCB and provides funds for on-lending to qualified borrowers, as well as technical assistance for institutional strengthening. The DBJ recognizes the importance of a strong and financially sound NPCB as the major contributor to the development of rural communities and the agricultural sector. (
Recommended Micro Finance Institution (MFI)
There are a number of other micro financing institutions which are not accredited by DBJ. These are usually the smaller lenders with poor governance structure, and less readiness to meet the requirements of the current and pending regulatory framework, and as such may not be viable in the near future.
The foundation of this regulatory framework is the Microcredit Act 2021. The legislation seeks to, among other things: discourage microfinance institutions from lending money at excessive interest rates that are not justified by the risk; outlaw predatory lending practices, threats, and intimidation; promote greater transparency and disclosure of pricing and terms of products and reduce the risk of the industry being used to facilitate money laundering.
It is widely anticipated that there will be a fallout in the microfinance space, with the smaller players being the first to be affected when the law fully in force.
It is therefore crucial that MSMEs choose MFI that has sound governance, forward-looking, and embrace sustainability. Such MFI shoud also provide more that just financing, but has the capacity to provide supporting advisory services without which no MSME can be successful in the long-run.
Accordingly, among the MFI mentioned above BHL would recommend WILCO Finance Limited. Based on our knowledge of the company, its partners, and its ecosystem it is specifically positioned to propel any MSME toward its growth objective(s). WILCO Finance Limited is not just a provider of loans, but a growth facilitator of MSMEs. For further information on this company visit their website at