Loans play an essential role in consumers’ lives as it allows them to consume goods and services that they may not have had been able to afford based on their current disposable income. Loans allow easier access to major expenditures such as real estate and motor vehicles as well as minor expenditures such as furniture or appliances or unexpected life events. In Jamaica, the “partner” system is a longstanding private system that facilitates loans in a small, closed network of individuals. Commercially, consumers of loan products (‘borrowers’) acquire loans in Jamaica from a variety of financial institutions such as microfinance institutions (MFIs), commercial banks, credit unions, and building societies.
The purpose of this paper is to provide borrowers with information on the practices of financial institutions concerning the early repayment of loans. It is hoped that this note will facilitate a more informed decision-making process on the part of borrowers. The paper identifies the stated policy of MFIs, commercial banks, and credit unions as it relates to the early repayment of loans. It is important to shed light on the policy of MFIs as, based on complaints, the expectation of borrowers regarding the early repayment of loans differ from their experience with MFIs. This suggests that there is some degree of information asymmetry in operation.