Oran Hall Building societies as option for personal financial solutions
There are only two building societies in Jamaica today, but they still play an important role in providing personal financial solutions, notwithstanding the fact that there are other financial institutions that provide mortgages – their main business activity.
At the same time, they provide personal financial solutions, which are also provided by other financial institutions, such as credit unions and commercial banks. These financial institutions thus compete to attract the savings of the public and to lend to it.
Like commercial banks and merchant banks, building societies are supervised by the Bank of Jamaica (BOJ) because they are licensed as deposit-taking institutions under the Banking Services Act. The principal aims of the BOJ as supervisor are to promote the safety and soundness of deposit-taking institutions and to promote the stability of the financial system.
Building societies offer a wide range of accounts in local currency and foreign currency through which their customers can save. These include fixed deposits and long-term savings accounts that can earn tax-free interest if the conditions applying to them are met.
The facilities for saving are not limited to adults. There are savings programmes for children to save for their tuition, examinations, tertiary education, and their lifestyle needs. Overall, then, building societies are important mobilisers of savings in the economy.
Building societies grant mortgage loans to buy housing units such as houses, town houses, and apartments for residential purposes and investment. The loans may be used for making purchases on the open market or for construction. They also grant loans to buy residential lots, to make home improvement, and to refinance mortgages granted by other lending institutions.
Indeed, they play an important role in helping Jamaicans here and abroad to realise the most important goal for many Jamaicans: home ownership.
The loans they give may be denominated in Jamaican currency or foreign currency, but apart from borrowers establishing their ability to pay generally, they would also need to establish that they have the wherewithal to service a debt denominated in foreign currency if they opt to borrow in foreign currency.
By partnering with the National Housing Trust in its Joint Finance Mortgage Programme, the building societies put themselves in a position to facilitate home ownership by more people as the arrangement allows borrowers to borrow more funds at lower cost overall. This is not unique to them as other mortgage-lending institutions also participate in the programme.
While other financial institutions compete with them on their core lending platform – mortgages – building societies boost their income from lending activities that they themselves offer. These institutions no doubt see themselves as facilitating their clients in attaining their personal and financial goals.
The range of purposes for which building societies lend seems to support this position. They grant personal and consumer loans, motor vehicle loans, education loans. They grant loans for emergencies, for health expenses, for acquiring assets and for debt consolidation, for example, and they grant secured and unsecured loans.
Debt-consolidation loans make it easier for the borrower to manage, that is, one loan instead of several, and very often easier to service because the periodic payments are smaller.
The most important test building societies expect borrowers to pass, like other lending institutions, is the ability to pay. Thus, they also lend to individuals who do not hold accounts with them and save with them as long as they satisfy that and the other conditions they are required to meet.
Although there are just two building societies in the country, individuals are able to have access to them by virtue of the branch network through which they operate. There was a time when there were several building societies spread across the country, but they were absorbed by the then two largest building societies, one of which has morphed into a commercial bank. What used to be the small building societies now effectively serve as branches of the entities that absorbed them.
Home ownership is becoming more and more a distant dream for many Jamaicans, but the building societies are still one means of realising that important goal. They also provide a path for them to attain some of their short-term and longer term goals through the loan products that they offer, while at the same time encouraging disciplined long-term savings.
– Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com