Access to finance plays a crucial role in business development, sustainability and growth. However, the lack of or insufficient access to credit for medium, small and micro-enterprises (MSMEs) is widespread in developing and emerging countries. The government of Jamaica recognises the MSME sector as key to developing the Jamaican economy. Attempting to boost access to finance for micro-entrepreneurs, the Jamaican government has worked through the Development Bank of Jamaica (DBJ) to provide credit for MSMEs. This study finds that the activities of the Development Bank of Jamaica (DBJ) seem to have had a positive impact on its partner microfinance institutions and on the entrepreneurs they serve, although it is challenging to conclusively demonstrate a causal link.
The DBJ received support from the European Investment Bank under a loan signed in 2016 aiming to boost access to finance for small businesses in productive sectors. The researchers used phone interviews to collect information from staff of two microfinance institutions receiving DBJ credit and from 420 of their clients. The analysis of their feedback showed a positive relationship between the amount of credit received and firms’ profits. Quantitative analysis using econometric methods designed to test for a causal link supported the results of the qualitative analysis, although it was not possible to conclusively demonstrate a causal relationship. Of the final beneficiaries interviewed, most indicated that the credit received from microfinance institutions improved their business performance. This support may have been particularly helpful during the COVID-19 pandemic, reported by 86% of firms as having negatively affected their business.
The microfinance institutions also confirmed that the DBJ’s credit line helped them to expand their portfolios and sustain their operations during a highly challenging period. However, the research indicated that microcredit had less impact on profits of female entrepreneurs, younger businesses and newer clients. The DBJ may need to do more to ensure these groups derive the maximum benefit from its support.
The study was part of a joint program run by the European Investment Bank and the Global Development Network, initiated in 2016, that deployed African researchers to assess the development impacts of the EIB’s work in African and Caribbean countries, allowing the bank to enhance its contribution to sustainable and inclusive development while simultaneously enhancing local research and evaluative capacity.
Name of the Asset | The impact of private sector projects in Africa Studies from the EIB-GDN Program (Study from Cycle III: The Development Bank of Jamaica)
Type of Asset | Paper in the Volume: The impact of private sector projects in Africa: Studies from the EIB-GDN Program (Cycle III).
Dates | 2021
Author | Jacob Novignon
Country and/or Region | Africa, The Caribbean and The Pacific (ACP) countries
Name of the Program | EIB-GDN Program in Applied Development Finance
Download the Full Reports | Cycle III