The Caribbean Association of Indigenous Bankers ( CAIB) is calling for the implementation of a centralised Caribbean credit bureau that in effect will be the main credit-assessing and reporting agency in the region.

This was one of the leading issues for discussion at the CAIB’s Board meeting which took place in Kingston, Jamaica last week. Speaking with Caribbean Business Report, from the Pegasus Hotel in Kingston, regional manager for First Citizens Investment Services (which this year holds the chair position) Carole Eleuthere- Jn Marie said: “The Board of Directors of the CAIB met in Jamaica to discuss some core issues that are important to member institutions. One of those issues was the implementation of a Caribbean credit bureau which we feel is a necessity in the region in terms of where banking and finance is heading. If one looks across the Caricom countries many institutions have operations in most of the territories but it is becoming very small in terms of expansion and growth.”

In Jamaica, former managing director of Scotiabank Jamaica Bill Clarke and the operator of Premier Credit Bureau Lennox McCloud have vociferously championed the establishment of a fully operational credit bureau. A Credit Bureau Act has slowly made its way through the legislative process and it may not be too long now before this mechanism takes hold in Jamaica.

Measures to strengthen regional oversight of the Caribbean financial system were high on the agenda of a meeting of central bank Governors of Caricom countries, Aruba and the Turks and Caicos Islands in May of this year. The meeting agreed on arrangements to produce a Caribbean Financial Stability Report by December 2012, under a project financed in part by the Inter-American Development Bank and coordinated by the Caribbean Centre for Money and Finance, located on the St Augustine Campus of the UWI. The report will be a collaborative effort between the participating central banks and the Centre, which will also collaborate on early warning systems of distress in the financial system, and policies to strengthen the resilience of the region’s financial sector. An update on efforts to establish a Caribbean regional credit bureau was also presented.

” As much as there is talk about the CSME, it is not yet properly implemented.What we are seeing is that our people are moving throughout the region whether it be to make investments or acquire homes, but there is no form of regional cooperation or recognition for that matter. If I am based in St Lucia but living in Jamaica I can very well have loans and credit lines in both St Lucia and Jamaica without any regional understanding or oversight body to monitor this.

“The whole thrust of the CSME and the free movement of labour has been rendered redundant and this lack of centralisation exposes financial institutions. What the regional credit bureau will do is basically see us as one territory and will help strengthen the financial backbone of the region. As it stands we have a lot of issues surrounding non-productive loans on portfolios and bad debts which weakens our financial institutions. The credit bureau will go some way to address this,” said Eleuthere-Jn Marie.

The regional manager of First Citizens Investment Services is of the view that regional financial institutions are receptive to a Caribbean credit bureau, but what is keeping it back is the politics of establishing such a super agency. Then there is the territorial nature of the Caribbean and the notion that the sharing of the data will be unequal, and so an uneven playing field will be created. This is why she sees it as important that this super bureau should be an independent entity.

Money laundering

“We must not allow criminals to wash the blood off the profits of drug sales, or finance terrorism or underwrite all manner of crime, by leaving open avenues for the laundering of the proceeds of crime,” President Clinton once famously said on the subject of money laundering.

In simple language, money laundering is disguising assets so they can be used without detection of the crime that produced them.The issue of money laundering has long bedevilled the Caribbean. Last year Antigua was among six Caribbean countries to make 2010’s ‘Major Money Laundering List.’

The US State Department in a report claimed that while ‘Antigua and Barbuda has comprehensive legislation in place to regulate its financial sector it remains susceptible to money laundering due to its offshore financial sector and Internet gaming industry,’

‘Noted money laundering problems in Antigua and Barbuda appear to be generated by schemes involving investment fraud and advance fee fraud. Drug-related matters have concerned not only narcotics but other controlled pharmaceutical substances being illicitly distributed over the Internet.’

Other Caribbean nations making the list include the Bahamas, Belize, Cayman Islands, Dominican Republic, and Haiti. The Caribbean Financial Action Task Force (FATF) enables Caribbean countries to monitor each others’ progress in implementing anti-money laundering measures. Many countries support the establishment of regional anti-money laundering review groups, modelled on the Caribbean FATF.

Carole Eleuthere-Jn Marie believes that anti-money laundering initiatives are becoming an issue that Caribbean countries cannot get around.

“There is no way our financial institutions can survive without having that corresponding banking relationship with the United States. Because the United States is having its own challenges curbing money laundering, their response has been to put in tighter requirements, and of course when the United States puts in place stricter measures we smaller countries like those in the Caribbean are the ones that suffer.

We are now seeing the requirements to know your customer and that customer’s transactions are becoming more onerous and rigid. If we in the Caribbean do not strengthen our requirements and policies internally, we stand to lose the access we have to deal with those banks in the United States.We cannot survive without a cordial and mutual relationship with the United States. In fact, our very own people who think the measures are draconian and onerous are the ones who have significant levels of transactions which they need to monitor. There is no way a business can survive in the Caribbean without access to United States suppliers. We depend on remittances and in many instances it is our very lifeblood and that comes out of the United States. Without a regulated and watchful financial system we cannot get access to those funds and that is why, as draconian as the US measures may be, it is a necessary evil for us.”

Ponzi schemes

Over the last five years, the Caribbean has seen a proliferation of Ponzi schemes that have even openly challenged legitimate financial players. In Jamaica, Olint, Cash Plus and Worldwise readily spring to mind. In Antigua, Allen Stanford’s operations were a cause for concern which led to his arrest by United States authorities.Carole Eleuthere-Jn Marie says in response to this, more stringent regulations have been put in place to combat these unregulated players. Nevertheless she cautioned: “We have to be mindful that we don’t end up in a situation where we over regulate to the extent that we stifle financial growth. Banking has not changed very much over the centuries and the reason why we ended up with the global financial crisis is that some of the banking and financial products had become a bit too creative. Ponzi schemes are cyclical, they come on, create some excitement; some fall by the wayside. At the CAIB we caution against them and play a more educational role in terms of getting people to ask the necessary questions before getting caught in any of these schemes. Banking is tried and tested but the commonality with all these Ponzi schemes is the get rich quick pitch. If it sounds too good to be true chances are it is too good to be true. People need to ask who regulates these outfits because by and large if they are not regulated by any recognised authority,then they are rogue unauthorised bodies who can do whatever they like with investors’ funds.

“A lot of it has to do with investor education and we continue to try to put on seminars, training programmes and try to educate the public as to what to look out for in terms of common investment mistakes.”

Many of these schemes point the finger at traditional finance houses pointing to high interest rates , generous spreads and in general the public in the Caribbean gets ripped off. Eleuthere-Jn-Marie notes that her colleagues have come under pressure in this regard. She believes that the public is not being made aware of the high operating costs in the Caribbean and that in many instances they expect to see a brick and mortar structure which comes at a cost.

In spite of the seemingly high spreads, those spreads have to cover the overhead costs of banking. I must add that operating costs are also increasing and this is something the banks do not have much control over. In order to both please and placate people the spreads have come down during the second half of this year particularly between loans and savings rates. Let’s not forget, there is a risk/returm premium and to keep the risk to an investor minimal comes at a cost. If you are going to get a low risk then there is going to be a low return. If you are going to take on a high risk, then you have to ask the relevant questions.”

A super Caribbean central bank

There continue to be calls for a Caribbean central bank particularly in light of the success of the Eastern Caribbean Central Bank. The former Governor of the Bank of Jamaica, Derrick Latibeaudierre, has made it clear that the different currencies, economic policies and country characteristics prohibit this idea. However, the prospect of a single central bank is gaining traction. What does Carole Eleuthere Jn-Marie make of this?

“I thoroughly agree and am all in favour of a single Caribbean central bank. We keep mooting problems with the different currencies as a stumbling block but I think that this ought not to be the case here. We know what we have to achieve and we recognise as individual small island states that we are still very weak. None of us are indispensable. A super central bank must become a reality because there are lots of individual good stories within the territories. If we bow to politics and who is going to be the biggest boss then it will be to our detriment as people of the Caricom community. Some of the territories are doing pretty well on their own, but for how long? There is strength in unity and if one or two countries are having problems, then there is help available.”