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MicroFin sector gets access to core banking platform

REPRESENTATIVES OF microfinance institutions, MFIs, or MCIs, are to sit down with regulators in the coming days to chart a way forward, as the MFIs transition to a regulated environment under the Microcredit Act passed in January 2021.

The legislation is seeking to formalise MFIs, while creating greater oversight for the industry, and also provide greater credibility to the institutions. The industry is represented by two advocacy groups, the Jamaica Association for Micro-Financing, JamFin, and the Jamaica Micro Financing Association, JaMFA.

Chairman of of JaMFA Andrew Mais is welcoming the meeting. He says it serves to strengthen the relationship between the regulator and the operators in the sector.

“We’re fully on board to having those channels of communication opened and enhanced. If there are issues that our membership is facing, there’s an avenue to get access to the regulator to have those issues aired and clarified,” Mais said.

“Both organisations have set up a joint action committee so that the regulators can meet with us. Through that interaction we hope to get answers to some of these things that may affect the licensing regime,” JAMFin Chairman Dr Blossom O’Meally-Nelson, told the Financial Gleaner.

The Microcredit Act seeks to, among other things, license MFIs and bring them under the regulatory supervision of the Bank of Jamaica, BOJ. The central bank says the principal aims of supervision under the act “are to minimise the possibility of the sector being used as a conduit for money laundering/terrorism financing and related matters, and to support adherence with the market conduct-related provisions of the act,” the BOJ says.

Total membership at JamFin is currently 17 MFIs. O’Meally-Nelson estimates that before the passing of the Microcredit Act 2021, there were approximately 200 or more companies operating in the microfinance market.

The planned meeting comes just after MFIs, also referred to as MCIs, started to put their houses in order, regarding the use of appropriate banking software to manage their operations.

Critical to the operation of financial institutions is a core banking platform. There is no indication as to how many of the MCIs have core banking platforms.

Alternative systems, as basic as Excel spreadsheets, are in use, but cannot stand up to modern regulatory and operational requirements.

Financial institutions have a range to choose from with systems such as Temenos, Mambu, Backbase, Oracle FLEXCUBE Finacle and Finastra being among the top 10 in the world.

A good core banking system is vital for daily operations, giving real-time calculations of loan sizes, repayment rates, and projections for both the customer and the financial institutions.

They also serve in back-office operations, such as automatically making appropriate entries to various records, backing up the data on the system, and producing periodic reports. These systems are notoriously expensive and can prove daunting to acquire and integrate into small operations.

Mais says JaMFA has put its membership in touch with third-party providers who are in a position to offer the necessary software and systems that will ensure smooth operations.

Meanwhile, O’Meally-Nelson says JamFin members and others are expected to benefit from a system offered by Phoenix International, a software provider which is a subsidiary of MC Systems, the tech arm of The Jamaica National Group.

JamFin recently signed a partnership deal with Phoenix which gives access to the core banking platform.

“We’re hoping that all of our membership and the wider sector utilises Phoenix International services. MCIs can use the digital platform to leverage their operations and aid in efficiency and effectiveness,” O’Meally-Nelson said, adding that it can assist by reducing the processing time for loans, and enabling them to work quickly in dealing with back-office duties.

“What we can say to MCIs is that digitising your operations is important for efficiency and effectiveness in operations,” O’Meally Nelson said.

Commercial Director of Phoenix International Dmitri Dawkins says the partnership has made it easier for small institutions to use Phoenix International by offering the core banking system as a managed service.

“‘Phoenix as a Service’ allows an institution to focus on their core operations, while MC Systems manages the back-end maintenance, hosting, upgrades and nightly operations. These options allow Phoenix International to meet the needs of small, medium and large financial institutions,” Dawkins said.

“The MFIs will have access to the entire system. However, they are expected to mostly utilise the lending functionality,” Dawkins added. “Customers may expand their services to include other functions in the future.”

O’Meally-Nelson would not be drawn on the effect on the state of licensing of the MCIs, given that they may not have appropriate systems. She is also offering no comment on whether the BOJ has made this a condition precedent to granting a licence, but says JamFin has been helping to get the MFIs ready for the full implementation of the Microcredit Act passed in January 2021.

“JamFin is always here to assist MCIs to meet the requirements of the regulator and assist in their operations. We assist in training, business services advice and other operational services,” O’Meally-Nelson said.

The MFIs will need to put systems in place to manage compliance with regulations, risk analysis and anti-money laundering requirements under the Microcredit Act.

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