'Delinquency Culture' Dooms Micro Lender


Tribune Business Editor


A “culture of delinquency” and inability to raise the necessary $500,000 start-up capital doomed an entrepreneur’s efforts to kickstart the Bahamian microfinance market, it was disclosed yesterday.

Ethan Quant, whose Progressive Consumer Services was the only Bahamian firm selected in to participate in the Inter-American Development Bank’s (IDB) 2012 Caribbean-wide microfinance initiative, said the Ministry of Finance-imposed moratorium on civil servant salary deductions also undermined his business model.

With delinquency rates “upwards of 38 per cent”, and no means to secure borrower repayments, Mr Quant said he ended up dissolving Progressive Consumer Services last year and passing the remaining loans to an attorney to work on debt recovery.

Undaunted by his experience, he told Tribune Business that mircofinance remained a large market in the Bahamas and one there was “definitely a need” for lender participants.

And Mr Quant added that the microfinance market had subtly shifted from one based on pay-day loans to a sector where self-employed persons and entrepreneurs sought small sums to smooth out cash flows and invest in their enterprises.

Confirming that IDB-appointed consultants had assessed both the Bahamian market and Progressive, Mr Quant told Tribune Business: “Where we fell down was the next stage, where we had to demonstrate the capacity to raise $500,000 in capital to sustain the programme we wanted to implement.

“Because we couldn’t do that, we couldn’t move forward [under the IDB initiative]. But with limited resources, we started to implement some of the recommendations they had made.”

Mr Quant explained that lacking the necessary capital, Progressive soon ran into problems.

“The microfinance industry is very high risk, and we couldn’t maintain the cash flow,” he said. “There was a very high delinquency rate, and we couldn’t secure the salary deduction option with the Ministry of Finance because they put a moratorium on that.”

Many lenders, including commercial banks, use salary deductions as a means of guaranteeing borrower repayments, especially with consumer loans.

But, with some 70 per cent of civil service salaries going towards these deductions, it is not surprising that the Ministry of Finance imposed a moratorium - thus denying Mr Quant and Progressive security for microfinance loans made to Government workers.

Facing high delinquency rates, Mr Quant said he was left with little option but “to cut our losses and move in another direction”.

Emphasising that the model eyed under the IDB initiative was “pretty good” and could be “self-sustaining” had the necessary start-up capital been raised, Mr Quant said a further obstacle was having enough staff to chase delinquent borrowers and originate new credit.

“We tried allowing clients to come in and pay cash over-the-counter, we tried allowing them to come in and leave a post-dated cheque,” he added. “They would write the cheque up for the day after they get paid, and many would bounce..

“We gave the portfolio to an attorney to try and do debt recovery for us. When the IDB came in to do the analysis, they came in and gave us some suggestions on how to recover a lot of the debt we had.

“But, due to the lack of human resources to follow up and generate new business, it was extremely taxing on the staff.”

Describing microfinance lending as “a tough business”, Mr Quant said he wished remaining lenders and pay day credit companies well, but added: “We have a culture of delinquency in the Bahamas right now.”

This meant microfinance lenders were usually last on a person’s creditors queue, as they prioritised repaying auto loans and the like.

Progressive had initially been focusing on a microfinance market featuring loans ranging from $500 to $5,000, with small business loans up to $10,000.

The microfinance loans were quickly scaled back to a maximum $2,000, and Mr Quant said the objective had been to “top up” quality borrowers once they repaid, graduating them from $250 to $500 and upwards.

Emphasising that there was “still a very large market” for microfinance lending, Mr Quant said the needs had evolved because Bahamians had moved on from having multiple jobs to holding down one job with a side business.

“Now it’s not the pay day advance. It’s hair braiders, and people who need small amounts of capital,” he explained. “We had a lady who did baking and needed $4,000 to get baking equipment.

“There are seamstresses here who need $750 to $1,500 to buy sewing machines and other equipment. That’s really the microfinance market we can take care of here. There’s definitely a market, there’s definitely a need.”

The key, Mr Quant said, was striking the balance between serving the need and creating a viable business.

“We need a system that’s self-sustaining,” he said, adding that the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) mentorship programme to-date offered the best prospects of success.

For his part, Mr Quant said he was now, based largely on ‘word of mouth’ referrals, facilitating financing for second home purchasers in the Bahamas who needed it.

And he has also moved into the health and fitness business, yesterday unveiling the launch of Elite Fitness’s Corporate Wellness programme - an initiative that has attracted the attention of “two top tier companies”.

“It combines two of my greatest passions, business and fitness. I’ve made a business out of fitness,” Mr Quant said.


sheeprunner12 5 years, 11 months ago




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