Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector October, 2020 With the Support of © 2020 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This work is a product of the staff and external authors of the World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non- commercial purposes. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or thegovernments they represent. The World Bank Group does not guarantee the accuracy of the dataincluded in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. All queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. CHAPTER 01 2 ACKNOWLEDGMENTS The publication of this study was made possible through the generous support of the Government of Canada and the Swiss State Secretariat for Economic Affairs (SECO). The study was led by a team composed of Pratibha Chhabra (Financial Sector Specialist) and Lillian Thyssen (Financial Sector Specialist) and prepared by the Arthur Lok Jack Global School of Business with support from within the World Bank Group under the guidance of Mahesh Uttamchandani, Damien Shiels, and Alejandro Alvarez de la Campa (Practice Managers). This publication benefitted immensely from the participation, guidance, and insights of other experts from the Secured Transactions and Asset-Based Lending Team (John M. Wilson, Elaine MacEachern, and Luz Maria Salamina) and from the input of Nelissa Hines (Analyst, World Bank Group); Karen Hylton (Small Business Financing Specialist) and Oral Shaw (Principal Director), MSME Division, Ministry of Industry, Commerce, Agriculture and Fisheries; and Imega Breese McNab (Executive Director), Jamaica Manufacturers and Exporters Association. The Arthur Lok Jack team that composed the report included Dr. Richard Ramsawak (Team Lead/Strategy and Competitiveness Expert), Dr. Miguel Dindial (International Business and Strategy Expert), Mr. Charles Maynard (Financial Expert), Ms. T’Nasha La Roche (Project Manager), Ms. Sade Lazzar (Researcher), Ms. Rochelle Stafford (Researcher), Mr. Etel Williams (Researcher), and Ms. Amrita Roodal (Project Assistant). The team would like to thank Nitin Kapoor from Vertical Accord for the design of the report. With the Support of Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 3 4 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector LIST OF ACRONYMS ABL Asset-based lending BOJ Bank of Jamaica DBJ Development Bank of Jamaica JAS Jamaica Agricultural Society JMEA Jamaica Manufacturers and Exporters Association MABL Movable Asset-based Lending MICAF Ministry of Industry, Commerce, Agriculture and Fisheries MSME Micro, Small, and Medium enterprise NSIPPR National Security Interests in Personal Property Registry PSOJ Private Sector Organization of Jamaica RADA Rural Agricultural Development Authority SIPPA Security Interests in Personal Property Act All dollar amounts are U.S. dollars unless otherwise indicated. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 5 TABLE OF CONTENTS Chapter 01 - Introduction 11 1.1 Background 11 1.2 Objective of the Assessment 13 1.3 Approach 14 1.3.1 Phase One 14 1.3.2 Phase Two 14 1.3.3 Phase Three 14 1.3.4 Phase Four 14 Chapter 02 - Understanding Asset-Based Lending and Common Secondary-Market Solutions 17 2.1 Overview 17 2.2 A Holistic Framework for MABL 19 2.3 A Focus on Secondary Markets 20 2.4 Key Lessons for Establishing Robust Marketplaces 20 Chapter 03 - Movable Asset-Based Lending in Jamaica 23 3.1 Overview 23 3.2 Recent Developments: Issues and Challenges 24 3.3 Conclusion 27 Chapter 04 - Summary of Results 29 4.1 A Deep Dive into Movable Asset-Based Lending and Borrowing in Jamaica: Summary 29 Results of a Survey of Borrowers and Lenders 29 4.2 Assets Frequently Purchased Secondhand 31 4.3 Sourcing and Disposal of Movable Assets 31 4.4 Disposal of Assets by Borrowers 33 4.5 Responses from Lenders’ Survey 33 4.6 Summary from Inward Mission 38 4.6.1 Market Informality and Fragmentation 38 4.6.2 Uncertainty and the Emphasis on Determining Anticipated Success 39 4.7 The Possible Impacts of COVID-19 Pandemic on MABL in Jamaica 40 4.7.1 Scope and Trends of the Coronavirus Pandemic 40 Chapter 05 - Summary Analysis of Key Secondary Markets in Jamaica 43 5.1 Case Study: Agri-Linkages Exchange (ALEX) Platform 45 5.1.1 The Platform 45 5.1.2 How the System Works 45 5.1.3 Challenges 45 5.1.4 Opportunities 47 CHAPTER 01 6 Chapter 06 - Final Recommendations 49 6.1 Key Features of the Portal 49 6.1.1 Registration of Buyers and Sellers 50 6.1.2 Inspection, Listing, and Valuation of Assets 50 6.1.3 Developing a Transparent Real-Time Auction System 50 6.1.4 Support for Online Payments 50 6.1.5 Maintaining a History of Transactions 50 6.1.6 Integration to Other Relevant Networks 50 6.2 Value Added Services 50 6.2.1 Delivery of Products 50 6.2.2 Feedback and Rating of Buyers and Sellers 50 6.2.3 Supporting Mechanisms and the Enabling Environment 50 6.2.4 Additional Issues 51 6.2.5 Possible Service Providers to Support the Development of the Portal 51 6.2.6 Ways That the Portal Addresses Key Requirements for Successful Secondary Markets 53 Chapter 07 - Conclusion 55 Appendix 56 Appendix A: Detailed Stakeholder Mapping 57 End Notes 59 References 60 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 7 LIST OF FIGURES Figure 1: Methodology 14 Figure 2: Access to Credit the Most Significant Barrier for Business 17 Figure 3: Collateral as a Major Constraint to Accessing Financing among Business 18 Figure 4: Cash Cycles for MABL 18 Figure 5: Framework for MABL 19 Figure 6: Number of Registered Collateral Assets, 2015 to 2019 24 Figure 7: Percentage Classification of Movable Assets Utilized as Collateral in NSIPP 25 Figure 8: Registered Collateral by Sectors (Average, 2015 to 2019) 26 Figure 9: Registered Collateral by Debtor Type (Average, 2015 to 2019) 26 Figure 10: Value of Registered Collateral Assets (Average, 2015 to 2019) 27 Figure 11: Profile of Survey Respondents 29 Figure 12: Source of Financing 30 Figure 13: Key Assets Held by Manufacturers 30 Figure 14: Purchase of Secondhand Assets by Borrowers 31 Figure 15: Sourcing of Machinery 31 Figure 16: Sourcing of Motor Vehicles 32 Figure 17: Sourcing of Office Equipment 32 Figure 18: Disposal of Assets by Borrowers 33 Figure 19: Survey of Lenders 33 Figure 20: Rating of Collateral Assets 34 Figure 21: Valuing Movable Assets 35 Figure 22: Market Dynamics of Movable Assets 35 Figure 23: Channels Used Most Frequently to Dispose of Movable Assets by Lenders 36 Figure 24: Frequent Buyers of Movable Assets 37 8 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector LIST OF TABLES Table 1: Types of Movable Assets Used by Key Registries 25 Table 2: Ranking of Movable Assets 34 Table 3: Valuation Mechanism Based on Movable Asset 39 Table 4: Frequent Buyers of Movable Assets 44 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 9 CHAPTER 01 10 CHAPTER 01 Introduction 1.1 Background One of the critical challenges to micro, small, and medium required. This includes a strong legislative and regulatory enterprises (MSMEs) continues to be access to finance framework and the existence of key support institutions, (World Bank 2019). Asset-based lending (ABL) is emerging such as credit bureaus and collateral registries. Information as a unique financing option for businesses and a new way technology is also becoming integral to MABL to facilitate to provide working-capital financing to support business payments and also to connect with key stakeholders. growth and sustain business operations. The approach For instance, online platforms such as Velotrade connect leverages nontraditional but valuable movable assets such companies interested in trading in invoices to investors. as machinery, equipment, securities, accounts receivable, It facilitates payments but also provides credit-analysis agricultural produce, and intellectual property rights as services. Innovative and diverse lending solutions collateral to secure financing from credit institutions. These are also being combined with robust information and assets are common among entrepreneurs and established communications technology infrastructure to facilitate businesses but are seldom considered as a useful form of payments, access information, and connect borrowers, collateral to access short-term financing. Interestingly, lenders, investors, and regulators. All key stakeholders, such among developing countries, movable assets represent as as legislators, regulators, valuators, credit analysts, software much as 78 percent of the capital stock of enterprises relative developers, brokers, lenders, borrowers, and lobbyists, have to immovable assets such as land and buildings (22 percent) to work collectively to increase their understanding and use (Alvarez de la Campa 2011). Despite this, insufficient of MABL solutions. collateral continues to be one of the main reasons loans are not granted in emerging markets (Fleisig, Safavian, and de A final key element of MABL is the presence of an active la Pena 2006), perhaps reflecting the preference of financial and liquid secondary market, particularly for the types of institutions to utilize collateral based on immovable assets movable assets included in the registry. A functioning and such as land and buildings. liquid secondary market is crucial not only to facilitate the timely disposal of the assets but also to help creditors Lending based on movable assets is much more common in assess future values and, by extension, the level and terms developed markets. In the case of the United States, more of credit that should be extended. Secondary markets also than 63 percent of loans to MSMEs are collateralized using give an idea of the possible risks in redeploying assets. They movable assets (Calomiris et al. 2017). Through the work can also help financial institutions by assessing their risk of the World Bank Group and the International Finance exposure so that they can ensure that sufficient capital and Corporation in particular, the use of lending based on regulatory provisioning requirements are met (Alvarez de la movable assets continues to expand throughout the globe. Campa et al. 2010). Many best-practice examples can now be found in emerging Technology is also increasingly being leveraged to facilitate markets such as Mexico, Colombia, Peru, Vietnam, and the growth and development of secondary markets. Online China, all of which have succeeded in expanding the use electronic-auction platforms are replacing physical auction and application of movable asset-based lending (MABL) marketplaces. These platforms are also able to link buyers solutions. Indeed, increasing use of lending based on movable and sellers both locally and internationally. Technology assets has resulted not only in an increase in financing can also be used to connect a network of buyers, sellers, available to MSMEs but also in the decline of credit costs financiers, and the government. Online platforms are also and an increase in productivity levels among implementing able to increase the speed and lower the cost of transactions countries (Alvarez de la Campa 2011). and to ease the collection and disbursement of cash. For MABL to work effectively, a holistic framework is In the case of Jamaica, in 2013 the Government of Jamaica, Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 11 in an effort to increase the use of MABL, passed the Security This assessment seeks to examine MABL in Jamaica, Interests in Personal Property Act (SIPPA) and established with a focus on developing possible options for deepening the National Security Interests in Personal Property Registry secondary markets among assets commonly used as (NSIPPR). The registry allows for the listing of collateral collateral in MABL. The report includes recommendations assets used for financing and so creates a priority of interest for developing secondary markets, among other potential among creditors. It also helps track transactions between assets that can be used for MABL, as well as general steps creditors and debtors. The SIPPA allows MSMEs and other for implementation. businesses to offer movable assets and investments such as motor vehicles, agricultural products, livestock, securities, machinery and equipment, crops, patents, trademarks, and other forms of intellectual property as collateral for securing loans. As of 2018, the number of registrations within the registry had increased to just over 25,000. The top three types of collateral used for financing include motor vehicles, furniture, and securities. Commercial banks are frequently cited to be conservative in their lending choices, and there is also a need to improve accounting processes and project evaluation and reporting among MSMEs.1 The government and its administrators have taken steps to increase the use of leasing, reverse factoring, and factoring as well as the functionality, confidentiality, and ease of transactions within the registry. 12 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 1.2 Objective of the Assessment The NSIPPR has been in operation since 2014. While year- • What tools are used in the market—online public on-year use has increased, the registry is still considered auctions, online valuation tools, and so forth underutilized.2 Such underutilization is an indicator that • Challenges for the creation of such markets in the MABL is still failing to garner significant traction in the selected jurisdictions Jamaican economy. This study acknowledges this reality and • Recommendations for the development of secondary advances one key argument: For MABL to work effectively, markets in Jamaica and any low-hanging opportunities a holistic framework is required. In other words, the ability (potential partners, including technological platforms) to register notices of security interests in movable property is for project teams from the World Bank Group to consider merely one of the supporting mechanisms needed to deepen MABL. This assessment focuses on the establishment of secondary markets aimed at assessing and managing credit risk by minimizing uncertainty around asset valuation and liquidation. The assessment provides recommendations for the development of secondary markets in Jamaica. To achieve this, the following assessments were conducted: • High-level analysis of the eligible movable assets that are relevant for credit institutions from the perspective of lending and provisioning • High-level analysis of the primary and secondary markets for movable goods in Jamaica covering the following points: — Whether categories of movable goods exist that are frequently sold in a populated network of buyers and are assessed by creditors for granting credit — If a network exists, what types of individual items are transacted inside that network — Whether prices hold consistent given similar type, quality, and quantity of goods, or there is price volatility — If prices are consistent, whether the network is reliable for setting secondhand values for the types of goods transacted therein. • Whether the market created by these buyers is liquid and can absorb the regular volumes of goods placed for sale (to be shared by the client and key partners in Jamaica) • Whether the goods are sold in a reasonably standard time frame or sales times vary • If sale times vary, whether this is due to predictable seasonal patterns or any other reasons • Whether there are industry, trade, or other associations that represent the network of sellers and buyers, and the nature of any incidence in sales in primary and secondary markets • Whether technological or other tools exist to assist in the listing of goods for sale • Whether technological or other tools are used to obtain the prices of goods for sale • Whether a network of valuators can reliably predict the value of the goods sold in the future within this market, covering any specific valuation methodology used Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 13 1.3 Approach 1.3.1 Phase One Phase 1 utilizes some information from the Inception Report, provide detailed information on the common movable assets which provided a review of main studies on secondary utilized as collateral, as well as existing secondary markets markets for movable assets. The report outlined key pillars used for the disposal of movable assets. Survey results are for the establishment of MABL globally. Additionally, we also likely to uncover emergent (and unforeseen) themes not examine the leading secondary-market solutions that can found in the prior phases on the assessment. be utilized for the main types of movable assets used in the Jamaican market with a specific focus on the manufacturing 1.3.4 Phase Four sector. Finally, we highlight issues, challenges, and trends During this phase, the survey results were analyzed and related to MABL in Jamaica. interview insights were gathered from Phases 2 and 3. This was done with a clear reference to best practices in setting up 1.3.2 Phase Two and operating secondary markets for movable assets in other During Phase 2, results from this review were complemented jurisdictions (Phase 1). Insights that deviate from established with information gathered from focus groups. Focus-group best practices provided an opportunity to recommend meetings with lenders and borrowers were organized during strategies that can help develop a formal secondary market our inward mission to Jamaica. A total of three focus groups that fosters efficient trade. were held: two with borrowers drawn from manufacturers and agro-processors operating in Jamaica and one with Adequate consideration must be given to contextual lenders (microlenders and commercial banks). Results from heterogeneity within the Jamaican market. Recommendations focus groups were complemented with information from in- must remain relevant and implementable in the Jamaican depth interviews with key industry stakeholders identified context (institutional factors, cultural and social norms, from the stakeholder map developed from the Inception regulatory frameworks, technology access, and so forth). Report. During this stage, the survey instrument was also pilot tested among focus-group participants and other Figure 1 outlines our approach for the final report. industry stakeholders. 1.3.3 Phase Three Triangulation of these results was achieved using data gathered from an online survey of lenders and borrowers (drawn from the agribusiness and manufacturers) operating in Jamaica. During this stage, the survey results were used to Figure 1: Methodology Implementation Analysis of Results Completion of Implementation of of Survey to and Finalization Inception Report Focus Groups Lenders and of Report Borrowers • Review of Secondary • Hosting of focus • Execution of online • Cleaning of data Reports groups among lenders survey to borrowers • Analysis of results • Interviews with key and borrowers drawn (microlenders and • Drafting of final report stakeholders from the agribusiness commercial banks) • Design of and manufacturing and borrowers questionnaire and sectors of Jamaica (agro-business and survey methodology manufacturing) 14 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector This final report is outlined as follows: Chapter 2 provides lenders. Chapter 5 provides a summary of secondary markets a review of the literature on MABL and secondary markets. in Jamaica. Final recommendations for the establishment of The case of MABL in Jamaica is outlined in Chapter 3, a secondary-market solution are provided in Chapter 6, and while Chapter 4 provides a deep-dive analysis of secondary conclusions are provided in Chapter 7. markets in Jamaica based on a survey of borrowers and Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 15 CHAPTER 02 16 CHAPTER 02 Understanding Asset-Based Lending and Common Secondary-Market Solutions 2.1 Overview Finance has been a critical challenge to business development. Specifically, access to collateral remains a main challenge The World Bank (2019), indicated that constrained access for MSMEs wanting to secure credit for business operations. to credit remains among the most significant limitations to Paradoxically, the availability of assets is not often a problem private-sector growth in many markets. Access to credit is for most MSMEs. This is because, in the developing world, crucial for economic growth and is the engine for private- movable assets often represent as much as 78 percent of the sector development. In order to foster private enterprise capital stock of an enterprise. In comparison, immovable productivity and promote formalization and the inclusion assets such as land and buildings represent only 22 percent of the informal sector, several factor indicators need to be of total capital stock (IFC 2017). More often than not, credit considered (Alvarez de la Campa 2011; Sultanov et al. 2019). applications may be declined on the grounds of insufficient These include developing modern credit infrastructure, collateral. Alternatively, borrowers may choose not to removing barriers to a wide range of financial services, and complete the application because they may perceive that enabling the development of innovative credit solutions they have inadequate collateral to back the value of the loan. The unavailability of assets is frequently not the problem; (See figure 3.) What is frequently required is the legislative, rather, it is the inability of the legal framework to facilitate institutional, and financial framework with accompanying the use of those assets as collateral. Financial institutions secondary markets and enforcement mechanisms that can overwhelmingly prefer immovable assets as collateral. facilitate the deepening of ABL based on movable assets. Preference toward immovable collateral is also reflected in Figure 2: Access to Credit the Most Significant Barrier for Business the regulatory frameworks prescribing capital requirements for regulated financial institutions. In contrast, in the United States movable assets comprise about 60 percent of the enterprises’ capital stock and account for around 70 percent of small-business lending (Sultanov et al. 2019). Based on the World Bank Enterprise Survey, access to finance remains a key challenge faced by businesses operating in the Latin American and Caribbean regions. (See figure 2.) Source: World Bank Enterprise Survey Database 3 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 17 Figure 3: Collateral as a Major Constraint to Accessing Financing among Business 80% 30% 70% 25% 60% 20% 50% 40% 15% 30% 10% 20% 5% 10% 0% 0% Africa East AsiaXX Europe andX XLatin AmericaXX South Asia Africa East AsiaXX Eu rope andXXLati n AmericaXX South Asia Central Asia Central As ia Source: World Bank Enterprise Survey Database MABL is considered one of the most effective tools for Figure 4: Cash Cycles for MABL providing credit to MSMEs since it provides financing throughout the enterprise’s entire production or service cycle (Sultanov et al. 2019). As an example, a manufacturing company can access revolving MABL credit to facilitate working-capital financing using cash, securities, accounts New Loan Finance receivable, or existing inventory as collateral (Sultanov et Producation al. 2019). The company utilizes this credit to purchase raw materials and manufacture more products. Proceeds from the sale of these products are then deposited to a controlled Payment Finished THE CASH account and used to repay the company’s outstanding loan. to Lender Products CYCLE (See figure 4.) In instances where MABL and lending based on nontraditional assets have been introduced, there is an Deposit to Sale to expansion in credit, a reduction in credit costs, and an contolled Buyer increase in productivity (Alvarez de la Campa et al. 2010). account Examples of the establishment of successful ABL regimes among emerging economies include Mexico, Vietnam, and Colombia. Examples in the more established markets Source: include Canada (British Columbia and Nova Scotia) and Secured transactions, Collateral Registries and Movable New Zealand (Alvarez de la Campa, Downes, and Hennig Asset-Based Financing Guide 2019 2011). Assets frequently utilized for MABL can include the following: • Motor vehicles • Aircraft • Equipment and machinery • Securities—shares, bonds, and futures instruments • Accounts receivable • Agricultural produce, agro-processed products, and supplies • Licenses, patents, and other forms of intellectual property 18 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 2.2 A Holistic Framework for MABL Figure 5 outlines a holistic framework that can be used to support MABL in host countries. Figure 5: Framework for MABL MABL Products Banking Secondary Credit Regulation Markets Based Information Legal Collateral Enforcement Framework Registries Systems Source: Secured transactions, Collateral Registries and Movable Asset-Based Financing Guide 2019 1. Legal framework: ABL requires a secured transaction and technological frameworks to provide for online law that supports the use and recovery of all forms of dispute resolution conducted by web-based systems. present and future assets used by MSMEs for raising financing. Legislation should be based on the United 4. Secondary markets: MABL assumes that an outstanding Nations Commission on International Trade Law Model loan can be repaid by the asset used as collateral to Law on secured transactions or other international secure credit financing. To this end, an active and liquid standards and best practices. secondary market is required so that assets can be sold to repay loans. An active and well-structured secondary 2. Collateral registries: A modern collateral registry is market is vital to support creditors’ valuation of assets also required. The registry requires registration for all to be used as collateral and assessment of risk for more forms of security interests in movables and functional specialized types of assets. Associated with this is the equivalents, including leasing and factoring transactions. presence of a network of valuators to establish accurate This registry provides a generic description of the pricing of goods sold on the secondary market. Finally, it collateral. In some instances, detailed information such is also essential to assess the extent that online platforms as serial numbers or vehicle information numbers can be exist that can facilitate listings and complete transactions used to identify the associated asset. This information of movable assets. must be available for all third parties to search, so that it can be used to protect lenders from other third-party 5. Banking regulations: Updated bank regulations are interests, which may have a lien on the assets of the necessary to keep borrowing costs down and to facilitate borrower. The registrar’s role is limited to verifying that the use of new movable assets as well as modern data is inputted where required. Access to the registry and updated financial solutions. As the regulatory should be available via online platforms. environment for secured-transactions reforms improves, one can expect increased acceptance and usage of 3. Extrajudicial enforcement: Extrajudicial enforcement movable assets to mitigate credit risk in compliance provides a much easier and faster recovery of assets (both with international financial regulations and standards. tangible and intangible) by lenders in instances where borrowers may be in default. Usually, extrajudicial 6. Credit-based information: Credit bureaus are key for enforcement requires a forfeiture clause included in the providing information on potential borrowers, as well as security agreement, and a valuation of the asset can be helping in the risk assessment of specific assets such as included to ensure that a fair return can be obtained by accounts receivables. the lender. An additional feature can be to include legal Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 19 2.3 A Focus on Secondary Markets having relatively low entry and transaction costs to access value-added services. The terms “secondary market,” “after-market,” or “resale- market” are used to refer to a system or place where a person 2. Key income streams and sources: Income streams can or entity can transfer ownership of an asset. Secondary come from transaction fees or commissions, membership markets in MABL are typically used for the disposal of or license fees, sale of industry information, value- the assets. Disposal is frequently referred to as a resale added services such as evaluation services, advertising, transaction, rather than an originating transaction. However, and marketing, and sale of accumulated marketing data information from secondary-market activity can also be used (Gallaugher, Auger, and BarNir 2001). to assess the relative riskiness of potential assets to be used as collateral in future loans. 3. Security: A secure environment to exchange commercially sensitive and financial information. It is important to note that the development of secondary markets for movable assets depends very much on the type 4. Trust and privacy: Trust in a marketplace can be of secondary asset offered for resale, as well as the nature signaled in the following ways: of the financing arrangement. For instance, disposal of equipment secured through a financial leasing arrangement   a. Greater sharing among users and open feedback may be completed quite easily through existing distribution   b. The sharing of links to other websites channels within a lessor’s network, among customers   c. The presence of unbiased product information from looking for cheaper lease options based on used equipment   third parties (CAK 2019). Alternatively, motor vehicles used as collateral   d. The ability to develop a reputational or brand presence for short-term loans may require a prior step to secure   based on repeated interaction. Privacy stems from the ownership, before it can be liquidated in established third-   need to protect sensitive information while maintaining party car auctions.   industry relationships. Common examples of secondary markets include: 5. Technology and market infrastructure to facilitate market transactions: Slow and inefficient market • Stocks, bonds, securities, and commodity markets— infrastructure can raise transaction costs, increase purchase ownership of shares that are resold to investors operational risk, and hinder growth in the number of • Car dealerships and auctions—purchase used cars that participants. Technology can be leveraged to lower costs, are sold to new owners connect market participants, and facilitate payment and • Web-based online platforms—Amazon, eBay, Craigslist, exchange. In some instances, there is the opportunity to “yard sale,” and similar websites and platforms for link local markets to internationally accepted trading consumers or investors to resell their goods and settlement systems, which can lower start-up • Grocery stores and markets—sell agricultural products and learning costs for smaller emerging economies. and supplies for resale to customers Additionally, it is important to ensure that the legal and • Consignment stores and thrift shops—provide a physical regulatory frameworks work in tandem to improve and store for third-party products deepen market infrastructure.4 2.4 Key Lessons for Establishing Robust 6. Fulfilling participants’ needs: To build upon and Marketplaces expand a network of users, it is important to identify and incorporate a relevant range of facilities to meet Generally, marketplaces are considered to be successful if or exceed participants’ needs. For instance, some profitable. More importantly, marketplaces are also places community site facilities can also create trust and act where buyers and sellers choose to transact to generate as a one-stop portal for industry participants (Wise and significant value through cost savings or to gain market Morrison 2000; Brunn, Jensen, and Skovgaard 2002). share (Brunn, Jensen, and Skovgaard 2002). Stockdale and Standing (2003), in their examination of factors that are critical for successful online marketplaces, identify the following five key factors: 1. A critical mass of buyers and sellers: The number of buyers and sellers willing to transact on the marketplace needs to be sufficient. Strategies to achieve this include 20 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector In the case of markets that focus on the sale for secondhand goods, Balocco, Perego, and Perotti (2010) highlight the following two additional essential features that ensure the success of such marketplaces: 7. Ensuring credibility and quality: The ability to guarantee the “credibility” of the sellers and to certify the quality of the products through different mechanisms 8. A targeted approach to buyers: The ability to reach a vast number of “targeted” buyers through advertising activities Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 21 CHAPTER 03 22 CHAPTER 03 Movable Asset-Based Lending in Jamaica 3.1 Overview The core legislative regime supporting Jamaica’s effort to a range of financial, technical, and innovative solutions modernize and improve the availability of domestic credit in to support the growth and use of ABL in Jamaica within its private sector is centered on the National Security Interests the existing legislative frameworks, and the Companies in Personal Property Registry (NSIPPR), which is designed Office of Jamaica, where the NSIPPR is located and for the registration of security interests in movable assets administered. that can be used as collateral to access credit, particularly for the MSME sectors. The registry is also hosted on a website 2. Financial institutions: Potential sources of financing for where searches for notices of other security interests can debtors (individuals and small and medium enterprises be done by accessing the registry records. The Companies primarily in the manufacturing and related sectors.) Office of Jamaica is the appointed registrar for the NSIPPR. These institutions would be the most likely sources All business and transactions are conducted online except for secured credit. They include commercial banks, for cases requiring direct payment. development banks, and microfinancing organizations. They also include cooperative institutions such as credit The enabling legislation for the NSIPPR is the Security unions, since, collectively, these institutions frequently Interests in Personal Property Act (SIPPA) and corresponding work in tandem with banks and larger financing regulations. The NSIPPA was passed in 2013 and is based on institutions, either as intermediaries or by providing the following four fundamental principles:5 pooling structure(s) that create economies of scale that are attractive to the banks. Engagement with this group • Creation of security interests in any form of personal is a high priority to determine their experiences to date property (tangible or intangible, present or future) with the NSIPPR and to solicit their specific needs and • Clarification of priorities among the different claims, by recommendations for (increased) utilization of MABL. creditors, on the secured property • Public notification of security contracts 3. Borrowers and membership organizations: • Enforcement, by creditors, of property rights in the Consumers, farmers, MSMEs, and larger firms make secured property, in an efficient manner up the bulk of potential borrowers who may utilize movable assets to secure credit and access finance. A Key stakeholders involved in MABL in Jamaica can be very high percentage of potential debtors can also be grouped into three broad classifications as follows (see found within umbrella organizations such as the Small appendix A for detailed stakeholder analysis and mapping): Business Association of Jamaica/MSME Alliance, Private Sector Organization of Jamaica (PSOJ), Jamaica 1. Regulatory and facilitative organizations: These Chamber of Commerce, and the Jamaica Manufacturers institutions provide both oversight and facilitative and Exporters Association (JMEA). Prioritization of functions for the various classes of movable assets and the above stakeholders within each class will depend related financing mechanisms. This includes such key on such factors as (1) membership levels, (2) the active stakeholders as the Ministry of Industry, Commerce, participation of members, (3) a willingness to partner Agriculture and Fisheries (MICAF), the key sponsor to conduct focus-group exercises, (4) the ability to organization, and the Bank of Jamaica (BOJ). These champion survey responses from members, and (5) institutions provide critical insights on the regulatory access to key personnel (liaisons). and oversight jurisdictions that govern the credit market generally. Other key organizations include the Development Bank of Jamaica (DBJ), which provides Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 23 3.2 Recent Developments: Issues and Chal- lenges MABL has been on the rise in Jamaica, as indicated by the banking regulations, as well as modern accounting standards number of new collateral assets that have been registered to facilitate increased use of movable assets as collateral in on the NSIPPR, which now averages about 25,000 new lending agreements. Institutions such as credit bureaus,6 registered collateralized assets. Loans to MSMEs now MICAF, and DBJ support the expansion of MABL in average 11 percent of total credit in 2016 (Senior 2012). Jamaica. More recently, DBJ completed studies on the use Collectively, the MSME sector contributes almost 43 percent of factoring and leasing in Jamaica,7 while MICAF also of Jamaica’s gross domestic product (Torero et al. 2006). recently completed an “Operational Review of the Secured Transaction Regime in Jamaica.” Recommendations from The Government of Jamaica has done much to create the these studies are currently being implemented to support the legislative, regulatory, and institutional environment to increased usage of these forms of MABL locally. support MABL. Apart from the enactment of SIPPA and establishment of the NSIPPR, there is a robust common- law framework. BOJ recently introduced a principles-based approach to the assessment of collateral to prudential Figure 6: Number of Registered Collateral Assets, 2015 to 2019 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2015 2016 2017 2018 2019 Source: NSIPPR While some financial institutions and informal lenders do closely by furniture (10 percent) and other types of assets not yet utilize the registry,8 table 1 details the types of assets such as jewelry (figures 6 and 7). Based on focus-group used in the Jamaican registry relative to other key registries discussions, it can be inferred that the preponderance of located around the globe. Despite the diversity of assets motor vehicles could be attributed to the fact that this asset listed in the registry, motor vehicles represent by far the can be valued and disposed of easily relative to other assets largest percentage of registered assets (79 percent), followed used in the registry. 24 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector Table 1: Types of Movable Assets Used by Key Registries Canada United New Jamaica Bangalesh Mauritus (BC) States (TX) Zealand Type of asset used as collateral Universal security over present and future √ √ √ √ √ √ Machinery and Equipment √ √ √ √ √ √ Motor Vehicles √ √ × √ √ √ Agricultural Products √ √ √ √ √ √ Crops and other agricultural yields √ √ √ √ √ √ Livestock √ √ √ √ √ √ Investment Property √ √ √ √ √ √ Documents of rights, financial instruments √ √ √ √ √ √ Intellectual Property √ √ √ √ √ √ A single account recievable √ √ √ √ √ √ Multiple account recievable √ √ √ √ √ √ Inventory √ √ √ √ √ √ Memebership and partnership interests × √ √ × √ √ Futures and Securities √ √ √ √ √ √ Source: Love, Pería, and Singh 2016 Figure 7: Percentage Classification of Movable Assets Utilized as Collateral in NSIPP Furniture. 10% Others. 6% Fixtures Securities . Vehicles. 79% 2% 1% Source: NSIPPR Currently, MABL is being offered by some key financial Unfortunately, based on usage, consumers represent the institutions such as commercial banks and key microlending majority of borrowers (over 63 percent) and over 83 percent organizations (Senior 2012). The main forms of MABL of the collateral used to secure individual loans. Commercial undertaken include reverse factoring, financing based on customers represent just 5.7 percent of registry with MSMEs, warehouse receipts, and operating leases. While credit is representing over 8.8 percent of the borrowers. (See figures currently expanding, more can be done to expand the use of 8 and 9.) MABL. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 25 Figure 8: Registered Collateral by Sectors (Average, 2015 to 2019) Mines 0.0% Agriculture 0.2% Government Serv ices 1.4% Commercial 5.4% Unspec ified 5.9% Ot her 22.7% Consumer 63.3% 0.0%.. 10.0%.. 20.0%.. 30.0%.. 40.0%.. 50.0%.. 60.0%.. 70.0%. Source: NSIPPR Figure 9: Registered Collateral by Debtor Type (Average, 2015 to 2019) 90.0% 83.8% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 6.3% 1.6% 3.2% 3.7% 1.4% 0.0% Large Small Medium Micro Uns pecified In dividual En terprise En terprise En terprise En terprise Loan Source: NSIPPR Finally, in terms of the average value of collateralized loans or assets, the latest estimates place the value between $5,325 and $53,250 (figure 10). 26 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector Figure 10: Value of Registered Collateral Assets (Average, 2015 to 2019) 25000 22076 20440 Number of Registered Assets 20000 17191 15000 10000 6744 5631 5000 726 0 1 to 17751 775 to 5325 to 14200 to 28400 to 53250 and 5325 14200 28400 53250 above US$ Source: NSIPPR 3.3 Conclusion Based on this analysis, we continue to see an increase in the To this end, despite the growth in lending, there is considerable number of loans secured with collateral based on movable scope for increasing the types of movable assets used as assets in Jamaica. The most common collateral asset collateral to finance credit transactions, as well as increasing registered on the registry is motor vehicles, and the most the types of clients that utilize this form of borrowing. common clients are consumers and individuals as opposed to businesses and microenterprises. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 27 CHAPTER 04 28 CHAPTER 04 Summary of Results 4.1 A Deep Dive into Movable Asset-Based Lending and Borrowing in Jamaica: Summary Results of a Survey of Borrowers and Lenders Of the 146 respondents, approximately 58 percent were years, reflecting the overall maturity of the sample in terms manufacturers, while 24 percent were classified as agro- of operation. An even distribution was also evident in the size processors. The remaining 18 percent were lending of businesses (measured by the number of employees). The organizations. More than 59 percent of respondents reported data indicated that approximately 36 percent of respondents being in operation for over 15 years, while only 16 percent employed 50 or more employees. Microenterprises of respondents reported being in operation for less than five comprised 17 percent of the sample (employing fewer than five persons). Figure 11: Profile of Survey Respondents 70% 58% 60% 50% % of responses 40% 30% 24% 18% 20% 10% 0% Manufacturers Agroprocessors Lenders 16% Greater than 50 employees 36% 17% 59% 21 to 50 emp loyees 27% 6 to 20 employees 20% 7% Less than 5 employees 17% 0% 10% 20% 30% 40% Less than 5 years Between 5 and 10 ye ars Betwee n 10 and 15 years More than 15 years Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 29 In terms of borrowers (manufacturers and agribusiness and the government (lending and grants), family and friends, enterprises), approximately 27 percent of the sample sourced cooperatives and credit unions, microlenders, and informal their financing from savings and loans and commercial pawn shops. Interestingly, 13 percent of the sample did not banks. Other sources of funding included state-owned banks secure any loans in the last year. (See figure 12.) Figure 12: Source of Financing Informal Lender Pawn Shops 1% Fo rmal Micro Lender 4% Cooper ativ e or Credit Un ion 7% Family and Friends 8% No l oans/ self funded 13% Stat e Owned Bank or Gover nment 14% Large Scale Savings & Loans Commercial ban ks 27% 0% 5% 10% 15% 20% 25% 30% In terms of assets, machinery (60.8 percent), office equipment percent of the respondents listed intellectual property rights (58.8 percent), inventory (51 percent), accounts receivable (IPRs) as a form of asset held by the companies. Crops and (48.3), and motor vehicles (41.2 percent) were the assets securities were the assets least frequently held by these listed most commonly by manufacturers. Interestingly, 33 respondents. Figure 13: Key Assets Held by Manufacturers 70.0 60.8 58.8 60.0 51.0 48.3 50.0 41.2 40.0 33.3 30.0 20.0 10.0 7.8 5.9 0.0 Security Crops IPR Motor Accounts Inv entory Office Machinery Vehicle Re ceivable Equi pment 30 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 4.2 Assets Frequently Purchased Secondhand Figure 14: Purchase of Secondhand Assets by Borrowers 60.0% 52.2% 50.0% 47.8% 40.0% 31.9% 30.0% 18.8% 20.0% Interestingly, respondents also frequently purchased secondhand 10.0% assets. Specifically, machinery, motor vehicles, and office equipment were the assets 0.0% purchased most frequently by Other Office Equipment Motor Vehicles Machinery secondhand means (figure 14). 4.3 Sourcing and Disposal of Movable Assets Respondents utilized such means as newspaper classified channels used to source machinery. Car dealerships, ads, dealerships, online portals, industry associations, newspaper classified ads, and word of mouth were the most and word of mouth to source secondary assets. However, common channels used to source motor vehicles (figure 16). channels varied based on assets required. Specifically, as Finally, newspaper classified ads, local dealers, and word seen in figure 15, online sources, newspaper classified ads, of mouth were the top three channels used to source office and international suppliers were the three most common equipment. (See figure 17.) Figure 15: Sourcing of Machinery Online Newspaper Classifields International Suppliers Formal Association or Grouping Word of Mouth Industry brochures 0% 5% 10% 15% 20% 25% 30% Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 31 Figure 16: Sourcing of Motor Vehicles 25% 20% 15% 10% 5% 0% Car dealers or used Newspaper Word of MouthXX OnlineX International Sources car lots classifieds Figure 17: Sourcing of Office Equipment In ternat ional Suppl iers Word of Mouth Dealers Newspaper Classified 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 32 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 4.4 Disposal of Assets by Borrowers As seen in figure 18, newspaper classified ads remain the of their assets over time. In many instances, respondents most popular means to dispose of assets (motor vehicles, indicated that they would keep assets for spare parts or, in machinery, and office equipment). However, a significant other cases, to dump or recycle assets. portion of the sample indicated that they chose not to dispose Figure 18: Disposal of Assets by Borrowers Newspapers 43% Word of Mouth 11% Do Not Resell 8% Online 5% Keep for S pare Parts 3% 0% 10% 20%XX 30%X X40%XX 50%X 4.5 Responses from Lenders’ Survey Respondents to the lenders’ survey included microlending banks and government agencies (10 percent). institutions (38 percent), cooperatives and credit unions (25 (See figure 19.) percent), commercial banks (13 percent), and state-owned Figure 19: Survey of Lenders 40% 38% 35% 30% 25% 25% 20% 15% 13% 13% 10% 5% 0% Fo rmal Micro LenderXX Cooper ativ es and CreditX XCommercial Banks XX State-ownedX Un ions Bank/Government Agency Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 33 Table 2 showcases the ranking of movable assets. Lending among movable assets, while machinery, office equipment, organizations considered motor vehicles to be the assets inventory, and accounts receivable were accepted by some used most frequently as collateral and also one of the financial institutions but with supplementary funding or most acceptable forms of collateral. On the other hand, collateral requirements. crops and intellectual property rights were ranked lowest Table 2: Ranking of Movable Assets Asset Type Average Rank 1 Motor Vehicles 1 2 Land and Building 2 3 Securities 3 4 Accounts Receivable 4 5 Machinery 4 6 Inventory 5 7 Office Equipment 5 8 Crops 6 9 IP 7 Figure 20: Rating of Collateral Assets 100 90 80 70 Percent of responses 60 50 40 30 20 10 0 Land and Motor Office MachineryXX AccountX XInventoryXX Cr opXX In tellectualXXSecurities Building Vehicle Equi pment Re ceivables Prop erty Highly acceptable Acceptab le Considered only with s upplementa ry Not considered by Institution 34 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector Of the total of 82 respondents, approximately 57 percent motor vehicles. However, valuation was also obtained by were manufacturers, 25 percent were classified as agro- information gathered from online sources, classified ads, and processors, and 18 percent were lending organizations. A personal experience (figure 21). Specifically, paid valuators total of 76 percent were small and medium enterprises, while were the most common means used to value motor vehicles. 24 percent were large firms. Online sources were the main means used to value most of the other movable assets. On the other hand, personal In terms of valuation of assets paid, valuators were the most knowledge was used primarily to value field crops and common source of valuation of movable assets, particularly accounts receivable. Figure 21: Valuing Movable Assets 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Securities Field Crop sXX In tellectual Accounts Office Production Motor Prop erty Re ceivables Equi pment Machinery Vehicles Paid valuators Online sources Personal knowledge Classified or Advertised posts Figure 22: Market Dynamics of Movable Assets 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% The asset may become outda tedS mall market fo r potential buyers Demand heavi ly aff ected by unpredict able season al demand Motor Vehicles Office Equipment Production Mac hinery Accounts Re ce ivab les Finished Goods/Inventory Field Crop s In tellectual Property Securities Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 35 Motor vehicles and inventory were considered the two Finally, finished goods/inventory, intellectual property, and assets most likely to be outdated over time in the open security-based assets were most affected by seasonality market (figure 22, panel A). Secondary markets for office in market demand (figure 22, panel C). Collectively, this equipment, production machinery, and intellectual property supports the relative importance of motor vehicles as were considered to be much more limited relative to such critical assets that can be used as collateral in movable-asset assets, supporting previous results highlighting the relative financing. difficulty in disposing of these assets (figure 22, panel B). Figure 23: Channels Used Most Frequently to Dispose of Movable Assets by Lenders Motor Vehicles Production Mac hinery Office Equipment Accounts Re ce ivab les Finished Goods/Inventory In tellectual Property Field Crop s 0% 5%XX 10%XX 15%XX 20%XX 25%XX 30%XX 35%XX 40%X Online Ads and Print media Advertisements, classified ads, and online tools were goods, and crops, while ads and print classifieds were used common channels used to dispose of movable assets by primarily in the case of motor vehicles, machinery, and lending agencies. However, online portals tended to be used accounts receivable9 (figure 23). more frequently to dispose of office equipment, finished 36 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector Figure 24: Frequent Buyers of Movable Assets 0. 4 0. 35 0. 3 0. 25 0. 2 0. 15 0. 1 0.05 0 Motor ve hicles Office equipment Field crop sXX ProductionX XFinishedX Accounts IP Machinery goods/ Inve ntory rece ivables Buyers interested in bulk purchase In dividual buyers Contracting Agents/Auctions to arrange s ale Finally, in terms of buyers of movable assets, individual motor vehicles and office equipment, while auctions were buyers, bulk buyers, and auctioneers were the most frequent more suited for the disposal of machinery and accounts buyers of movable assets sold by lenders. However, receivable (figure 24). individual buyers appeared to be more willing to purchase Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 37 4.6 Summary from Inward Mission 4.6.1 Market Informality and Fragmentation Feedback from mission interviews indicated that the that may rely heavily on anecdotal evidence (for example, secondary market for movable assets possessed the following personal knowledge). Being aware of this constraint, lending characteristics: institutions are inclined to discount the value of the movable asset heavily. This can sometimes result in the following two • Fragmentation: Insights from the survey data show outcomes: that lenders are of the view that the potential market for key movable assets remains small (that is, office • The manufacturer becomes unable to access the requested equipment and production equipment). This assumption capital owing to low valuations on the movable asset. is so pronounced that it is common for manufacturers (1) • The manufacturer may be forced to pledge multiple to store unused equipment as spare parts, and (2) to sell pieces of movable assets to meet the required collateral the equipment as scrap metal.10 value. In such instances, the lenders may opt to refuse lending due to the higher transaction costs associated • However, feedback from the focus groups indicated that with accepting multiple pieces of movable assets as both lenders and manufacturers may seek the sale and collateral. purchase of used movable assets from similar categories of traders. For instance, a manufacturer may visit a used- Bank of Jamaica concerns: BOJ had a list of acceptable equipment dealer that is located nearby. Likewise, a collateral in the past. This listing of acceptable collateral separate manufacturer may also be interested in a similar existed within the draft Credit Classification, Provisioning, piece of equipment and may visit a similar but unrelated and Non-Accrual Regulations. To give banks more room to trader (without being aware that a wider pool of traders utilize movable assets, BOJ in 2019 issued its Standard of exists). While the category of trader is similar, the Sound Practice on Problem Asset Management, Provisioning two operate in fragmented spaces. This fragmentation Requirements and Accounting for Expected Credit Losses, creates enclaves that effectively restrict the depth of the in which the bank introduced a principles-based approach to market and create liquidation challenges for assets that the assessment of the collateral. otherwise may have significant aggregate supply and demand. This principle-based approach encompassed the following three core principles: • Degree of informality in trading: Empirical insight from both the field interviews and survey data indicate 1. Legal certainty over the arrangements that manufacturers leverage their informal network 2. The market price or objective price of the collateral when purchasing or liquidating movable assets—for 3. The presence of the market—that is, having (i) a primary instance, relying on word of mouth or recommendations market and (ii) a secondary market for collateral from other manufacturers. For BOJ to determine if these principles are met, the This brings to the forefront the following two issues, which relevant information must be provided. The lack of a robust have restricted MABL in Jamaica: valuation network will challenge banks when meeting the requirements for the second principle—and the possibility High discounting: Without a robust network of valuation for capital relief for nontraditional collateral. expertise for key movable assets, lenders frequently resort to internalizing the valuation process by leveraging in- company resources to establish the value of movable assets. These duties are sometimes performed using methodologies 38 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector Table 3: Valuation Mechanism Based on Movable Asset Movable Asset Valuation Mechanism Reported Accounts receivables Face value of receivables and personal knowledge to assess the creditworthiness of the receivable firm Movable production machinery Some existence of a narrow professional valuation network coupled with online sources or old classified and advertisement posts Finished goods Personal knowledge and online sources Office equipment Online sources or old classified and advertisement posts Field crops Rarely considered Intellectual property Rarely considered 4.6.2 Uncertainty and the Emphasis on Determining Anticipated Success The uncertainty of estimating the secondary-market sound business plans11 as essential components of the potential for movable assets is affecting lenders’ estimation loan application. Likewise, 88 percent deemed financial of risk. An immediate outcome is one where lending statements, cash-flow projections, and evidence of historical institutions are forced to overemphasize the likely success performance as mandatory for loan applications. of the investment project (or reason for financing). In the presence of poor secondary-market and valuation options, Even so, in interviews, key stakeholders frequently flagged financial institutions have opted to place greater emphasis on these elements as weakest for MSMEs—especially those determining the ex ante success of the business proposal. This that operate with a high degree of informality. included 50 percent of the survey respondents considering Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 39 4.7 The Possible Impacts of COVID-19 Pandemic on MABL in Jamaica The COVID-19 pandemic of 2020 has been an unexpected providing pandemic monetary relief to its citizens. global event that continues to create great shock and displacement. Worldwide there have been over 4.2 million In the best of times, access to financing, especially from the infections and close to 300,000 deaths.12 In addition to the formal banking institutions, has been very difficult for most devastating loss of lives and overwhelmed medical facilities, of the targeted constituents. Even when there is some access, there is continuing severe economic fallout arising from the the costs of compliance and repayment are challenging. lockdown and social-distancing measures (among others) MABL has been positioned to fill that gap. Lockdowns that the governments of most countries have instituted as the utilized to flatten the curve come at steep economic costs. first line of defense to flatten the curve of this pandemic. These costs are characterized by the high unemployment, lower wages, and restricted access to credit that result Like every other country, Jamaica has had to implement from the stay-at-home features accompanying the various immediate emergency measures to combat the threat to its lockdown strategies. Lockdowns have a disproportional citizens and residents’ lives and general public safety, while effect on MSMEs, which typically lack access to the credit developing strategies to navigate both short- and long-term needed to bridge this undefined period of loss to stage any economic recovery. Estimates as of May 11, 2020, show that type of recoveries. Jamaica has registered 505 cases of coronavirus infections and nine deaths. This section of the report attempts to put In the United States, it is estimated that among lower-wage into context how the growth of MABL in Jamaica can be earners, 35 percent of people lost their jobs within six weeks. affected amid the uncertainty surrounding the coronavirus. A working paper by Chicago’s Becker Freidman Institute It also analyzes the strategies being used to combat the showed that correspondingly only 9 percent of the highest- pandemic and some foreseeable challenges ahead for the wage earners lost their jobs.15 The downturn associated constituents most likely to bear the brunt of the economic with the coronavirus pandemic is falling very unequally fallout. Uncertainty is the keyword here, and its relevance is across wage earners.16 This trend is expected to be seen in seen by how quickly so many things have changed and are most countries, with Jamaica being no exception. Lowest- expected to change further. wage workers, entrepreneurs, and MSMEs will be among the constituents most exposed to the COVID-19 pandemic, 4.7.1 Scope and Trends of the Coronavirus and many may find it especially difficult to access timely Pandemic relief from either governmental or financial institutions. The Government of Jamaica can use this opportunity to The COVID-19 pandemic is expected to last for two years highlight and promote MABL as a priority recovery strategy. or at least 18 months (which is the time commonly estimated The government could utilize a combination of direct relief to develop an effective vaccine against the coronavirus.) to affected constituents, such as the manufacturing and According to the Center for Infectious Disease Research agri-business sectors, while providing prudent incentives, and Policy at the University of Minnesota, close to 60–70 partnerships, and leadership to the banks and other financial percent of the world’s population is also expected to be institutions to meaningfully increase the use of MABL infected throughout this pandemic. There is still no scientific products and platforms to alleviate any anticipated credit proof or consensus that any sort of herd immunity will occur, crisis. although that’s the hope and expectation of some experts.13 In the delicate balancing act between public health and As most of the world has done, Jamaica has closed its borders safety and economic recovery, governments face the risk to international visitors until further notice. Combined of reopening the economy too soon without adequate with restrictive stay-at-home orders (with exceptions for safeguards. Lifting lockdown measures too early can lead to access to essential services) and social-distancing rules, the a feared second wave of infections, further jeopardizing any adverse impacts on such important sectors of the economy economic recovery in the process. This was the experience as tourism, manufacturing, and agri-business, among other of Hokkaido,17 an island in the northern region of Japan that areas, cannot be exaggerated. In a very recent study of 66 was cited as an early model of how to control the spread of emerging countries’ financial strength published by The the coronavirus disease. Hokkaido, with a population of 5.3 Economist, Jamaica ranked 56th.14 This could pose some million people, first suffered an outbreak in February after liquidity issues for the Government of Jamaica, which will its annual Sapporo Snow Festival, which attracted over two have much increased fiscal responsibilities in providing million visitors. After their lockdown mitigation measures financial resources for public health and safety, as well as seemed to be working, they reopened the city in March only 40 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector to suffer a new wave of infections, leading the city to be Driven principally by the stay-at-home orders instituted shut down again.18 In Wuhan, China, where it is believed that by governments worldwide, the COVID-19 pandemic has the coronavirus originated, the city was locked down for 76 accelerated the trend of working remotely. The use of Zoom days. Officials project that economic growth and production has skyrocketed as employers instituted work-from-home would be painfully slow, estimating that after three years, delivery platforms where applicable, and all indications the economy will still be hurting. The government in Wuhan are that this may be one of the enduring legacies of the has implemented a rent-free program as one of its short-term coronavirus-induced crisis. However, there must be digital strategies; businesses leasing from state-owned enterprises platforms and infrastructure for remote work to be practicable pay no rent for three months.19 and efficient. The Caribbean region is arguably less than ready to operate meaningfully in a digital environment. It was given a rating of 5 out of 10 by Therese Turner-Jones, the general manager of the Inter-American Development Bank’s Caribbean Country Department.20 Here could be a great opportunity for the Government of Jamaica to take the lead, working with the Jamaican banks and other financial institutions to create the digital platforms and products in the financial-technology space for online delivery of services for banking and other suitable transactions. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 41 CHAPTER 05 42 CHAPTER 05 Summary Analysis of Key Secondary Markets in Jamaica Several secondary markets exist in Jamaica. These markets on the platforms. More recently, the Government of Jamaica take many forms depending on the type of movable asset, took steps to establish the online Agri-Linkages Exchange the buyers and sellers’ level of sophistication, and the overall (ALEX). (See the accompanying case study for a breakdown formality and institutional support provided to facilitate of the platform.) This platform was set up to facilitate the transactions on these markets. Newspaper classified ads, purchase and exchange of crops between farmers and dealerships, and online platforms continue to dominate in buyers within the hotel industry. The overarching aim of the terms of both sourcing and disposal of secondhand assets. platform was to leverage technology to bring hoteliers in However, formal and informal associations and “word of direct contact with farmers to retain more of the economic mouth” relationships also play critical roles in both the benefits of tourism in Jamaica, since there is an opportunity sourcing and disposal of assets. Motor vehicles, movable to present a reliable supply of “high-quality” produce year- machinery, and office equipment are the most commonly round to customers. While ALEX deals specifically with traded assets on these markets. In some instances, persons produce and agricultural items, this platform can be seen as may also choose not to dispose of assets, keeping assets for an example not only in terms of functionalities but also in spare parts or dumping where necessary. terms of experience developing an online market solution for movable assets. Inopportunely, many market channels provide only very basic functionalities, focusing on listing details of items for sale Table 4 highlights the frequency of movable assets being and bringing buyers and sellers together. Other value-added sold, their use as collateral, lending opportunities for these services, such as valuation of assets, facilitating payments, assets, and the secondary markets in which the assets can be and shipping of assets, are not included. For instance, it is found. relatively easy to provide a brief description of the asset on these platforms. This may be a contributing factor in terms of the types of assets that are frequently traded through these channels, as is the continued importance of informal network relationships to facilitate transactions. Specifically, informal networks can facilitate the exchange of private information in terms of the quality of assets, while reputation effects can insulate against the offer of poor-quality products or services for sale. It should be noted that several online solutions exist to facilitate the trade of secondary assets. Platforms include a mix of local and international online marketplaces, where persons can sell various items based on category.21 These existing online marketplaces usually lack professional valuations, but images of the items are usually included and a rating system is in place for both the seller and the product. Additionally, not all online marketplaces facilitate online payments or carry a history of transactions completed Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 43 Table 4: Frequent Buyers of Movable Assets Used as Lending Options Asset Collateral Frequency Current Secondary Markets Locally Locally Agricultural Yes Medium Credit advances • ALEX products, • Local marketplaces particularly high- • International exports value-added products such as cocoa and coffee Inventory Yes Medium/low Credit advances • None, used mainly as collateral and to ensure repayment (typically not collected and resold) Accounts Yes Medium Factoring • None, but steps are being taken to create an receivable online platform to facilitate factoring Reverse factoring Motor vehicles Yes High Short-term credit • Newspaper ads • Used-car markets Financial leases • Car auctions • Operating • Facebook marketplace leases • Yard sales https://jamaicaclassifiedonline.com/ • Loan sharks and pawnbrokers • Jamaican classified https://www.jappclassifieds. com/ • Jam deals http://www.jamdeal.com/browse/ featured • Cool deals https://www.coolmarket.com/ Equipment Yes Medium • Short-term • Informal business networks that facilitate the credit sale of assets • Financial • Facebook marketplace leases • Amazon and eBay • Operating • Individual buyers leases Intellectual No Low Limited usage • None property Furniture Yes Medium/ Short-term credit • Facebook marketplace high • Yard sales https://jamaicaclassifiedonline.com/ • Loan sharks and pawnbrokers • Jamaican classified https://www.jappclassifieds. com/ • Jam deals http://www.jamdeal.com/browse/ featured • Cool deals https://www.coolmarket.com/ Jewelry and other Yes Medium Short-term credit • Yard sales https://jamaicaclassifiedonline.com/ forms of movable • Loan sharks and pawnbrokers assets • Jamaican classified https://www.jappclassifieds. com/ • Jam deals http://www.jamdeal.com/browse/ featured • Cool deals https://www.coolmarket.com/ 44 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 5.1 Case Study: Agri-Linkages Exchange (ALEX) Platform One of the central aims is to look at the options that presently Quality control: Extension officers carry out site visits to exist for developing secondary markets for movable assets. farmers prior to the crop being reaped to ensure the quality The ALEX platform was set up to facilitate the purchase and of the produce. Extension officers are assigned to different exchange of goods between farmers and buyers within the districts or zones around Jamaica. Presently, there is one hotel industry. The overarching aim of the platform was to officer per district. Due to the limited number of extension leverage technology to bring hoteliers in direct contact with officers, there is a focus on larger farms, and visits to farmers farmers to retain more of the economic benefits of tourism often have to be strategically planned to get the most out of in Jamaica, since there is an opportunity to present a reliable the site visits. Marketing brokers are also utilized. Brokers supply of “high-quality” produce year-round to customers. liaise with farmers to source products and find out what is While ALEX deals specifically with produce and agricultural available for sale. If a specific crop is in demand, brokers items, this platform can be seen as an example not only reach out to officers and farmers. Information about when in terms of functionalities but also in terms of experience the crop is grown and which farmer would be able to help developing an online market solution for movable assets. is provided. Marketing officers can also assess produce for quality control. It is hoped that this exercise will be done 5.1.1 The Platform more frequently, perhaps along with coordinators. The platform was initiated in late 2018, and the original Additionally, through RADA, farmers are offered training website underwent revision in 2019. Generally, the platform programs that will assist them with quality control in the hosts registered farmers’ stores for marketing purposes. The long term. RADA trains the farmers on produce handling platform requires farmers to register to utilize the services and selection, assisting them in reducing losses in future offered by ALEX. sales. Transportation and storage: No warehousing, storage 5.1.2 How the System Works facility, or transportation service is offered by ALEX, but the platform’s sister organization, Agro Investment Corporation, Registration process: Officers from the Jamaica offers warehousing services as well as processing, packaging, Agricultural Marketing Information System survey the and exporting services to those who require it. Farmers are market and develop a price range in different parts of the required to pay for these services. country to establish a “price band” that farmers can use for advertising their products. 5.1.3 Challenges Registration can take place in two ways: Farmers can register either online, via the website, which can be accessed • Online transactions: Actual transactions are not presently by computer or cellphone, or call in, in which case an officer done through the site. Transactions are made directly will complete the registration process for them. All farmers between the buyer and the farmer. Once the transaction who wish to utilize the ALEX platform must be registered is completed, the information is updated on the platform with Rural Agricultural Development Authority (RADA) as by the officers or coordinators. legitimate farmers. Farmers who are registered are assigned • Payments: Sometimes farmers are not paid fast enough. a number that works as a personal ID. Since they are unwilling to commit to a buyer if payments The farmers and officers or coordinators will be in direct are delayed, some farmers are hesitant to register for the contact with each other. Farmers will notify the coordinators platform. The farmers prefer persons who can pay up about the availability of their produce. The coordinators, front or very fast, as they need the money to put back in turn, will update information on the platform about the into their operations. produce and cost. They can also link farmers with potential • Platform usage: A general observation, even prior to the buyers. onset of COVID-19, was the need to increase usage by hoteliers. Other “big buyers” peruse the platform but Transactions: Actual transactions are not presently being still prefer to call in, rather than log in, to the site. It is done directly through the site. The officers or coordinators expected that these entities need more time to adapt to can prepare and manage invoices on behalf of the farmer. the platform and its features. Invoices can be generated and sent to the buyer so that they know the actual cost of the transaction. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 45 46 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 5.1.4 Opportunities • Financing: Communications are underway with DBJ to assist with the implementation of a financing system to create a credit footprint or enhance creditworthiness for farmers. Discussions are also taking place to assist with the development of reverse-factoring options for farmers who sell their crops to larger, more-established entities. This solution will enable a faster turnaround for farmers when assessing working-capital financing, and it will also act as an incentive for more farmers to register on the platform. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 47 CHAPTER 06 48 CHAPTER 06 Final Recommendations MABL in Jamaica continues to be on the rise. One key Based on this analysis, there is a need to provide a element in the framework for MABL is secondary markets. comprehensive solution that can facilitate trade in multiple Secondary markets facilitate the disposal and trade of types of movable assets. The platform should provide movable assets, updated market-based valuations, and key value-added features that support decisions and historical information for secondhand assets. Secondary bridge institutional weaknesses in the Jamaican market, markets for movable assets exist in Jamaica, but they are such as the screening of buyers and sellers, the valuing mainly fragmented and based on traditional means, such as and viewing of assets, and facilitating online payments. newspaper advertisements, physical auctions, and informal Critical to this approach is the support and collaboration word-of-mouth channels. Online portals do exist. Apart from among key stakeholders in the public and private sectors, bringing buyers and sellers together and providing a brief both in the endorsement and use of the portal. It is hoped description of the assets, however, many of these channels that, by addressing these challenges, the portal will be able offer very limited value-added services, such as valuations to facilitate trade among an increasing number of actors and payments that can support decision making and the (buyers and sellers), as well as a varied number of movable completion of transactions. Additionally, because of these assets. As potential buyers and sellers continue to use the factors, few assets are commonly traded in these secondhand portal, and as confidence in the portal increases, it is hoped markets—specifically, motor vehicles, machinery, and, to that a critical mass in terms of the types of assets listed and a lesser extent, office equipment. This limits the markets’ the number of transactions on the portal will grow over time. ability to achieve a critical mass in terms of the number and types of assets that are listed and the volume of transactions that are completed on the portal. 6.1 Key Features of the Portal Registration Listing and Real-time Online Transaction of buyers and valuation of online auction payment history and sellers assets system system rating of actors 1. Supplemented by newspaper ads and advertising among financial institutions 2. Warehousing 3. Robust valuation and supplemented by price guarantees and certification for valued assets Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 49 6.1.1 Registration of Buyers and Sellers disbursement of any outstanding balances to the seller. The portal should be open only to registered buyers and 6.1.5 Maintaining a History of Transactions sellers. Registration will be the first level of screening to ensure that buyers and sellers are legitimately interested. To establish a process for long-term valuation for assets, it is important to capture a history of the completed transactions. 6.1.2 Inspection, Listing, and Valuation of Assets Transaction histories and sale prices can be used to generate a reliable value for similarly classified assets. Specifically, the portal should provide a detailed description of items listed for sale. This can include serial numbers, 6.1.6 Integration to Other Relevant Networks detailed specifications, and accompanying photos and videos (if required). If necessary, options can also be in place for Integral to the use of the portal will be linking the portal interested buyers to view items physically at a designated to key stakeholders, such as finance companies, state location, such as strategically located warehouses. agencies, and representative organizations such as MICAF, JMEA, and Jamaica’s NSIPPR. Ideally, this portal should The key to successful use of the portal is the valuation be marketed by private companies and state and supporting of assets. We, therefore, recommend that support be nongovernmental organizations as the go-to location for provided by an in-house valuation team whose members disposing and sourcing movable assets. are internationally certified to support the valuation of assets listed on the website. This paid-for service can be 6.2 Value Added Services accompanied by a certification of quality. Other users can have the option to list items “as is,” which is not supported 6.2.1 Delivery of Products by an updated valuation. Accredited valuations can be used to guarantee a baseline payment to creditors. Depending on the nature and weight of assets sold on the portal, we can consider delivery of purchased items to Given the importance and proliferation of newspaper buyers. This service can be provided at an additional cost classified ads in supporting the sale of movable assets, it and facilitated using a local or international package and is recommended that online listing be supplemented with parcel delivery service. advertisements in local newspapers. 6.2.2 Feedback and Rating of Buyers and Sellers 6.1.3 Developing a Transparent Real-Time Auction System The portal should have a built-in mechanism to support the provision of feedback on completed transactions, both in It is important to have a transparent real-time auction system terms of the system’s ease of use and the rating of buyers and that facilitates the sale of assets. The system should display sellers. This information will guide future users to higher- bids for listed assets in real time, highlighting such things as quality buyers and sellers. the bid price, the time the bid is placed, and the registration number or user name of the bidder. For security reasons, 6.2.3 Supporting Mechanisms and the Enabling both buyers and sellers will be identified by their registered Environment user name or ID in order to conceal individual identities. Once bidding is closed and the sale of assets is complete, The secondary-asset market portal should be managed as a this information can be saved for a specified period so that self-funded agency but operated in close collaboration with it can be viewed by persons querying the bidding process or financial institutions, key state agencies such as RADA, award of sale. MICAF, NSIPPR, and DBJ, and representative industry organizations such as JMEA, PSOJ, and the Jamaica 6.1.4 Support for Online Payments Agricultural Society (JAS). Once transactions are completed, funds can be collected A key element of the strategy is the valuation and certification from buyers using common online payment platforms (for of assets, such as training and certification of valuators in example, PayPal) and disbursed to sellers or other key Jamaica. This should be done in collaboration with key parties. In instances where assets are used as collateral for internationally accredited valuators such as the International financing, once the sale transactions are completed, the Valuation Council.22 balance of funding can be distributed directly to the finance companies for settlement of outstanding credit, before final Awareness building in the use of movable assets as collateral 50 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector is also critical and has to be an ongoing strategy among online payment provider WIPAY Caribbean24 or PayPal. borrowers and lenders alike. Results of the primary and Additionally, a partner for asset valuation can also be secondary research point to a continuing lack of awareness considered. of movable assets as collateral among borrowers in Jamaica; some lenders that utilize movable assets as supplementary i-Naira Integrated Resources was established in 2011 and collateral may not list these assets on the NSIPPR. Increasing has developed an integrated online portal for the listing awareness and use of movable assets as collateral can and disposal of movable assets within an emerging market increase the number of listings on the online portal. in Nigeria. Apart from listing and facilitating the disposal of movable assets, i-Naira provides additional value-added Results of the survey of lenders continue to highlight that services such as valuation of assets, price guarantees to many borrowers continue to run very informal business lenders, and collection services. i-Naira also operates closely operations in Jamaica. A lack of formal financial statements with the National Collateral Registry of Nigeria to support and the unavailability of forecasts hamper the evaluation the deepening of the secondary markets, particularly for of credit applications among banks. As such, lenders must collateralized movable assets. increasingly rely on personal relations and past credit history to determine if credit can be provided to lenders. WIPAY Caribbean is an established regional information and communications technology company that facilitates 6.2.4 Additional Issues online payment and transactions based on blockchain technologies across various territories in the Caribbean, such Results from the survey and interviews with key stakeholders as Guyana, St. Lucia, and Trinidad and Tobago. The online also highlighted the following key issues that need to be payment platform can facilitate the secure transfer of funds considered when implementing the portal solution: between buyers and sellers but can also be integrated with other key stakeholders such as governments, to facilitate the 1. A perception by some traders that assets are not payment of taxes, and financial intermediaries, to facilitate valuable once they have been sourced as a reposed the settlement of outstanding loans. item, particularly in the case of motor vehicles. As such, significant discounts (well below the assessed value) PayPal is an online payment method that was originally may have to be offered to facilitate the disposal of these established in 1998. PayPal offers secured online payment assets. transactions for both personal and business accounts. 2. In terms of equipment, there is a tendency to favor new, PayPal’s seller-protection policy will protect online sales rather than used, equipment when making purchases. from fraud and chargebacks. Users need to create an account Additionally, in some instances, owners of equipment and link their credit-card information to the “PayPal digital may choose not to sell their secondhand assets and may wallet.” Persons who do not have a credit card or debit card instead keep these assets to use as scrap. can link their bank account to their PayPal account. Funds 3. A low acceptance of Internet-based transactions by can then be transferred from the personal bank account some actors, particularly those from rural communities to PayPal accounts. The availability of multiple payment or locations where Internet connectivity remains options makes PayPal easy to use and accessible for all users. limited. One of the key lessons of the launch of ALEX, and also one of the results of our survey, is the strong The International Valuation Standards Council is an and continued dominance of informal channels both to independent global standard setter for the valuation source and to dispose of movable assets. Such traditional profession. The council’s core objectives are to develop high- channels such as newspaper classified ads continue to quality International Valuation Standards and to encourage dominate in the purchase and disposal of movable assets. their adoption, along with valuation professionalism As such, the portal will have to be used in tandem with provided by professional valuation organizations around the these traditional means. It should be emphasized that world. The council can be utilized for valuation expertise. this online solution can provide faster and more updated information than a traditional paper-based medium. 6.2.5 Possible Service Providers to Support the Development of the Portal Two key service providers that can be used to support the development of the portal solution include i-Naira Integrated Resources Limited,23 based in Nigeria, and the Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 51 52 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 6.2.6 Ways That the Portal Addresses Key Requirements for Successful Secondary Markets Key Elements for Successful How the Solution Addresses This Dimension Secondary Markets A critical mass of buyers and sellers • Being able to facilitate the trade of multiple assets • Linkages with key stakeholders, such as financial organizations, key state agencies, and representative organizations • The go-to marketplace to support the disposal of the following secondary assets: — Public-sector assets — Insurance companies — Finance companies • Note: This may create more competition in this market segment, and there can be potential negative feedback from vested stakeholders. Key income streams and sources • Commissions from the sale of the following assets: — Private assets — Public assets • Valuation and certification program • Advertisements and popups on the portal • Registration fees • Value-added: — Financial and insurance services — Delivery Security, trust, and privacy • Screening of participants: — Registration process • An anonymous bidding system • Systems to detect shill bidding (collusive and individual) • Facilitating payments in real time • Feedback and rating of buyers and sellers Technology • Anonymous online auction system • Virtual payment system • Networked to key agencies (registry, finance companies) Fulfilling participants’ needs • Disposal of secondary assets • Screening of buyers and sellers • Adverse selection (certification of quality, being able to view assets) Ensuring creditability and quality • Certification program • Facilitate physical viewing of listed assets A targeted approach to buyers • The go-to site for movable assets in Jamaica Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 53 CHAPTER 07 54 CHAPTER 07 Conclusion Access to capital is one of the fundamental problems A deeper examination of secondary markets in Jamaica based plaguing MSMEs (World Bank 2019). This is especially so on interviews as well as a survey of borrowers and lenders in emerging and developing countries (Senik et al. 2011). paints a picture of a very fragmented and still very much Part of the problem stems from narrow asset bases and emerging market system. Newspaper classified ads continue MSMEs’ inability to conform to traditional lending criteria to dominate as the primary means to facilitate the sourcing, (especially as they relate to forms of collateral). As such, valuation, and disposal of movable assets. Also important firms in developing and emerging markets are unable to are informal network relationships both within and outside access much-needed loans that can drive positive economic of representative organizations to support these transactions. activity—for instance, product development, innovation, Online markets solutions also exist in Jamaica, but most and market-deepening strategies. provide very limited support, apart from the listing of assets and bringing buyers and sellers together. A fundamental issue This paper has examined the wider framework of MABL and in the Jamaican context is the valuation of assets. As such, highlighted the importance of developing deep secondary both buyers and sellers use innovative means to facilitate the markets to support the implementation of MABL. Based on valuation process, such as online tools, newspaper classified the review, to establish secondary markets it is important to ads, personal experience, and word-of-mouth relationships. have a critical mass of buyers and sellers willing to trade. This therefore limits the types of assets frequently traded It is also important to build trust and confidence in these in the secondary market of Jamaica. Specifically, motor markets. This can be done by ensuring timely completion of vehicles, machinery, and office equipment continue to be transactions and ensuring the security and privacy of actors. It the most frequently traded assets in Jamaica. Other movable is also important to develop various income sources through assets such as inventory, crops, and intellectual property commissions and fees to facilitate the ongoing maintenance rights are traded less frequently. costs of these markets. Furthermore, transactions on secondary markets are increasingly facilitated through The recommendation is therefore to establish a single web-based solutions and technology. In some instance, online platform that can facilitate the trade of multiple types secondary markets can be very specialized, focused on a of movable assets and bring a critical mass of buyers and specific niche of customers or type of movable asset. Many sellers from Jamaica and the wider Caribbean region to new online marketplaces also offer value-added services, facilitate a greater level of trade in movable assets. More such as the valuation of assets, insurance, and financing importantly, the online platform should be built with specific services, supporting both buyers and sellers throughout the value-added services that facilitate such transactions as transaction process while also acting as a one-stop shop for valuation of assets, facilitation of online payments, and related services. delivery services. To build usage at least initially, use of the platform should be complemented with traditional market Lending based on movable assets has been on the rise in channels, such as newspaper advertisement and classified Jamaica, but motor vehicles make up the bulk (more than ads. It is important that the promotion and use of the portal 75 percent) of assets listed on the registry, and lending is be facilitated through key stakeholder organizations such as geared primarily toward consumers (more than 63 percent), MICAF, RADA, DBJ, JMEA, PSOJ, and JAS as well as key rather than commercial interests. Collectively, this reflects financial institutions. The portal should be the go-to location a somewhat skewed and limited usage of lending based on for sourcing and disposing movable assets. It is hoped that as movable assets in Jamaica. usage of the portal increases over time, historical information can be used to build a repository of data on transactions involving movable assets and further deepen information on transactions in these regional markets. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 55 Appendix 56 Appendix A: Detailed Stakeholder Mapping Stakeholder Code Stakeholder Role 1 Ministry of Industry, Commerce, MICAF Overview of movable assets financing and identification of Agriculture and Fisheries, Jamaica players within the applicable sector 2 Development Bank of Jamaica DBJ Regulatory oversight and legislative details for secured transactions, credit access, and loan guidelines 3 PSOJ Access to Finance Panel PSOJ Practical insights and detail on relevant issues affecting access to financing for small and medium enterprises and entrepreneurial sectors 4 Jamaica Intellectual Property Office JIPO Determine other potential approved types of movable assets 5 Companies Office of Jamaica COJ Demonstration of SIPPR applications and use Identification of other critical players, including new or expanded platform(s), for trading movable assets 6 Jamaica Customs JC Extrajudicial enforcement of collateral assets 7 Planning Institute of Jamaica PIOJ Prioritization of policies 8 Jamaica Business Development JBDC Provide feedback on market reach and areas for Corporation expansion Access to innovation programs, including accelerators and incubators, for the development of Fintech applications for an electronic platform(s) 9 Bank of Jamaica BOJ Regulatory oversight and legislative details for secured transactions, credit access, and loan guidelines 10 Jamaica Stock Exchange JSE Framework for secondary market activities 11 Jamaica National Small Business JNSBL Direct engagement for focus groups, survey participants, Loans and one-on-one discussions for the creation of new credit products 12 Jamaica Cooperative Credit Union JCCUL Identification of key members and regulatory requirements League 13 Jamaica Bankers Association JBA Direct feedback on desired requirements (legislative, scale, risk mitigants) that would drive engagement and participation in movable assets financing. Individual banks’ creation of new credit products 14 National Export-Import Bank of EXIM Direct engagement through focus groups, survey Jamaica participants, and one-on-one discussions for the creation of new credit products Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 57 15 Jamaica Micro Financing Association JAMFA Crucial class of financiers for small and medium enterprises, micro, and individuals Direct engagement through focus groups, survey participants and one-on-one discussions for business models structuring 16 National Peoples Cooperative Bank NPCB Direct engagement for focus groups, survey participants, and one-on-one discussions for the creation of new credit products 17 Jamaica Association of Micro JAMFIN Direct engagement through focus groups, survey Financing participants, and one-on-one discussions for business models structuring 18 CRIF Jamaica CREDIT Analysis of credit reporting and enforcement system BUREAU 19 CreditInfo Jamaica CREDIT Analysis of credit reporting and enforcement system BUREAU 20 Department of Cooperatives and DCFS Legislative/regulatory conditions and the ability for Friendly Societies cooperatives in the movable asset space 21 Small Business Association of SBAJ Core membership engagement for survey and focus- Jamaica/MSME Alliance group sessions 22 Private Sector Organization of PSOJ Ground-level policy recommendations and implementation Jamaica 23 Jamaica Manufacturers and JMEA Core membership engagement for survey and focus- Exporters Association group sessions 24 Jamaica Agricultural Society JAS Core membership engagement for survey and focus- group sessions 25 Women Entrepreneurs Network of the WENC Membership engagement for survey and focus-group Caribbean sessions 26 Young Entrepreneurs Association YEA Membership engagement for survey and focus-group sessions 27 Jamaica Chamber of Commerce JCC Provide a sample mix of potential secured creditors and debtors 58 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector End Notes • Alvarez de la Campa, A. 2011. Increasing Access to Credit through Reforming Secured Transactions in the MENA Region. Washington, DC: World Bank Group. • Alvarez de la Campa, A., S. C. Downes, and B. T. Hennig. 2012. Making Security Interests Public: Registration Mechanisms in 35 Jurisdictions. Washington, DC: World Bank Group. • Alvarez de la Campa, A., E. T. Wohlers, Y. Baranes, and S. Simavi. 2010. Secured Transactions Systems and Collateral Registries. Washington, DC: International Finance Corporation. • Balocco, R., A. Perego, and S. Perotti. 2010. “B2B eMarketplaces: A Classification Framework to Analyse Business Models and Critical Success Factors.” Industrial Management and Data Systems 110 (8): 1117–37. • Brunn, P., M. Jensen, and J. Skovgaard. 2002. “e-Marketplaces: Crafting a Winning Strategy.” European Management Journal 20 (3): 286–98. • CAK (Competition Authority of Kenya). 2019. “Market Inquiry to the SME Leasing Sector of Kenya.” • Calomiris, C. W., M. Larrain, J. Liberti, and J. Sturgess. 2017. “How Collateral Laws Shape Lending and Sectoral Activity.” Journal of Financial Economics 123 (1): 163–88. • Fleisig, H., M. Safavian, and N. de la Pena. 2006. Reforming Collateral Laws to Expand Access to Finance. Washington, DC: World Bank Group. • Gallaugher, J. M., P. Auger, and A. BarNir. 2001. “Revenue Streams and Digital Content Providers: An Empirical Investigation.” Information and Management 38 (7): 473–85. • IFC (International Finance Corporation). 2017. MSME Finance Gap: Assessment of the Shortfalls and Opportunities in Financing Micro, Small, and Medium Enterprises in Emerging Markets. Washington, DC: International Finance Corporation. https://openknowledge.worldbank.org/handle/10986/28881 License: CC BY-NC-ND 3.0 IGO. • Love, I., M. S. M. Pería, and S. Singh. 2016. “Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Financing?” Journal of Financial Services Research 49 (1): 1–37. • Senik, Z. C., B. Scott-Ladd, L. Entrekin, and K. A. Adham. 2011. “Networking and Internationalization of SMEs in Emerging Economies.” Journal of International Entrepreneurship 9 (4): 259–81. • Senior, A. 2012. “Financing the Micro, Small and Medium Enterprises (MSMEs) Sector in Jamaica: Constraints and Prospects for Leasing, Factoring and Microfinance.” Bank of Jamaica. http://boj.org.jm/uploads/pdf/papers_pamphlets/ papers_pamphlets_Financiang_the_MSME_Sector_in_Jamaica_-_Constraints_and_Prospects_for_Leasing,_ Factoring_and_Microfinance.pdf. • Stockdale, R., and C. Standing. 2003. “Market Makers’ Recognition of Key Success Factors in Electronic Marketplaces.” Australasian Journal of Information Systems 10 (2): 23–37. • Sultanov, M., J. M. Wilson, E. MacEachern, L. M. Salamina, and P. Chhabra. 2019. Secured Transactions, Collateral Registries and Movable Asset-Based Financing (English). Knowledge Guide. Washington, DC: World Bank Group. • Torero, M., M. Robles, M. Hernández, J. De la Roca, M. Webber, and D. Thomas. 2006. The Informal Sector in Jamaica. Economic and Sector Studies No. RE3-06-010. Inter-American Development Bank. • Wise, R., and D. Morrison. 2000. “Beyond the Exchange: The Future of B2B.” Harvard Business Review 78 (6): 86–96. • World Bank. 2019. “Small and Medium Enterprises (SMEs) Finance: Improving SMEs’ Access to Finance and Finding Innovative Solutions to Unlock Sources of Capital” (web page). https://www.worldbank.org/en/topic/smefinance. Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 59 References 1. Assessment of Leasing and Factoring Market in Jamaica, Development Bank of Jamaica (DBJ); see • http://www.boj.org.jm/pdf/NFIS_Annual_Report_2017.pdf. 2. http://www.jamaicaobserver.com/news/IMF-points-finger-at-banks-for-lack-of-growth_62122 3. Quartile 4 is the most constrained and represents greater challenges in terms of access to finance among borrowers drawn from manufacturers, including agro-processors operating in Jamaica. 4. An example of this is the case of Trinidad and Tobago, where supporting regulations surrounding the facilitation of online payments have yet to pass, hampering the usage of e-payments locally. 5. See the Summary of Provisions related to the Registry for the Security Interests in Personal Property. 6. The two credit bureaus in Jamaica are CRIF Information Bureau Jamaica and Credit info Jamaica. 7. See Access to Finance for MSMEs and Housing, World Bank, 2017: http://documents.worldbank.org/curated/ en/598931517454038216/Jamaica-Access-to-Finance-for-Micro-Small-and-Medium-Enterprises-Project. 8. “Operational Review of Secured Transaction Regime in Jamaica,” MICAF, 2017. 9. Approximately 6 percent of the respondents utilized auctions also to dispose of motor vehicles. 10. Interestingly, this pattern was also found in borrowers’ decision to dispose of equipment and machinery, where only 25 percent of survey respondents indicated that they chose to dispose of these assets by sale. Approximately, 45 percent of respondents indicated that they would keep these assets so that they could be used for spare parts. 11. Lenders in focus groups did not specify if these applications were existing or new businesses. In the survey, however, many of the lenders continued to highlight the overall informality with which many businesses continued to operate in Jamaica, as will be the case for many other emerging markets. 12. Source: World Health Organization/European Centre for Disease and Control. 13. COVID-19: The CIDRAP Viewpoint, CIDRAP, April 30, 2020. 14. The Economist, May 2, 2020. 15. The U.S. Labor Market during the Beginning of the Pandemic Recession, Becker Freidman Institute, June 2020. 16. https://qz.com/1853641/covid-19-job-losses-in-april-hurt-women-and-minorities-the-most/ 17. In Hokkaido, like Jamaica, tourism is an important industry. 18. “Japanese Island Suffering Second Wave of Coronavirus after Lifting Lockdown Too Early,” The Telegraph, April 29, 2020. 19. “Wuhan Shows the World that the End of Lockdown Is Just the Beginning of the Covid-19 Crisis,” CNN, April 30, 2020. 20. “Caribbean Digitally Unprepared for Covid-19,” Barbados Advocate, March 31, 2020. 21. Appendix A summarizes all features of the main secondary-market platforms in use in Jamaica today. 22. https://www.ivsc.org/about 23. https://i-naira.com/ 24. https://wipaycaribbean.com/what-is-wipay/ 25. https://www.ivsc.org/ 60 Assessment of Secondary Markets for Movable Assets in the Jamaica Manufacturing Sector 61