Parliament has passed, with bipartisan support, amendments to the money services law, paving the way for monitoring customer protection, interest rates, and disclosure within the microfinance sector.
The amendments, which were piloted by Minister of Finance Camillo Gonsalves, fill the regulatory vacuum surrounding some micro lending entities and also deal with mobile payment service providers.
Senator Shevern John, who led the response by the opposition, welcomed the changes, saying that they were long overdue and can help to protect consumers from false advertising and financial pitfalls.
Gonsalves noted that there are five micro financing institutions operating in St. Vincent and the Grenadines (SVG), namely, FastCash, QuickCash, Ready Cash, CashWiz and Advance Cash.
He said that although the microfinance sector in SVG is operating on a very small scale, there is the likelihood of more companies participating in this sector in the near future, as is the cause in neighbouring jurisdictions.
He said that the micro financing companies fell under the anti money laundering and counter financing of terrorism legislative regime in SVG.
“However, there is a substantial gap between regulating them from an anti-money-laundering standpoint and regulating them in a prudential sense,” he said, adding that none of the type of work that these micro financiers do would come under money laundering restrictions.
“So there’s a gap there that has to be filled,” he told lawmakers, adding that several jurisdictions in the Caribbean have already moved ahead with prudential supervision of microfinance in companies.
He said regulation of micro financing in SVG could provide some legitimacy to the business operations of the companies that provide these services and promote a stable expansion of the industry while protecting consumers.
Regulation can also ensure the viability of the industry and encourage the relevant entities to operate efficiently and promote fair market pricing, particularly in relation to issues such as onerous contractual terms, excessive interest rates and over indebtedness.
The finance minister further said regulation can streamline the operation of the microfinance institutions in conformity with international best practices.
He said there are two well-known mobile payment service providers operating in SVG — Payswif and Squeeze Cash — and two other entities have indicated very strongly their intent to enter the market in the very near future.
He said these services are still rapidly evolving and, therefore, difficult to understand and capture.
Further, because they keep changing, it is difficult to track transactions, lending the process to the misuse of these technologies.
“As a result, they can be attractive for some criminal enterprises such as money laundering activity,” Gonsalves said, adding that he was not saying that taht has been the case in SVG, although it happens in more developed countries.
He said that because of the lack of regulations, banks, “ever cautious, ever concerned about money laundering and terrorist financing, ever concerned about preserving their correspondent banking relationships” have said to some of these mobile payment providers that they cannot do business with them anymore.
“This is a level of regulation that they’re welcoming, because they think that it will expand the opportunities to do business and increase the offerings here in St. Vincent and the Grenadines,” the finance minister said.
Meanwhile, in her contribution to the debate, John described the amendments to the law as “timely”, saying that it has the full support of the opposition, which had one question: “Why has this taken so long in coming?”
She said that the changes would be especially welcomed by the mobile payment service providers, which she said are youthful businesses that will contribute to the development of the economy.
The opposition senator expressed hope that banks would work closely with mobile payment services now that the law has been passed.
The lawmaker said she was especially pleased with the consumer protection elements of the law, adding that micro financing businesses must properly educate consumers on their rights and their responsibilities.
“And I am hoping that it does not only stay here, but that the regulators will ensure that these institutions have programmes in place to educate the consumers of their rights”
She said that many people, “when the hype is on”, take these micro financing loans and do not pay attention to the fine print.
“But after you start feeling the pain, many complain of the high interest rates, because consumers, even though they are rational, they don’t take the time to read.
“When we want the money, all we want to do is sign, get the cash in our hand and we walk out to buy what we want.”
She said many people have gotten themselves in trouble because of this, with some having even suffered the embarrassment of having their names published in the newspaper because of failure to repay.
“They don’t play to print names at all,” John said of the micro lenders.
She also said that some micro financiers engage in misleading advertising.
“You go in thinking that you’re going to get a two for one instead they will tell you no not two for one is something else. So, this section is very, very important to consumers,” John said.