The Macro and Micro finance sector has gained considerable attention from His Majesty King Abdullah II and Queen Rania Al-Abdullah as one of the best means to improve citizens’ standards of living and create a spirit of initiative and self-employment. Among the examples of His Majesty’s concern are:
His Majesty’s letter to His Excellency the Prime Minister in 2004: “We also call for more efforts by various institutions in order to support the development of small enterprises in the Kingdom’s governorates and ensure their success." (1)
His Majesty’s letter to His Excellency the Prime Minister in 2006: "preparing a strategy for the advancement of the enterprise sector and small and medium-sized enterprises and expanding the provision of the necessary funding for such projects, in order to provide opportunities for young people to serve the nation and support their entrepreneurial and creative ideas." (2)
Her Majesty Queen Rania Al-Abdullah is an International Ambassador of the United Nations for small loans in 2005. Her Majesty is a supporter of small enterprises. (3)
Al-Rai newspaper, 30 July, 2007
Al-Rai newspaper, 26 November, 2006
Her Majesty Queen Rania’s Website www.queenrania.jo
Her Majesty sponsors the transition of the program, to support training for small-scale projects to the private sector, in July 2000, "This event is a model of cooperation and partnership between the public and private sectors that we are witnessing in Jordan, and it holds in its content the human dimension of micro finance which combines entrepreneurship with the resolve to achieve a better future for all Jordanians. " (1)
First meeting of the Executive Board Microcredit Initiative in the Middle East and North Africa 2005, when Her Majesty said: “Micro-credit is working to help poor families and individuals in the region to unleash the ambitions to start their projects and the provision of rapid employment capable of building assets." (2)
Time Magazine selects Her Majesty Queen Rania as one of the most powerful and giving international figures (Time Power Giver), 9 May, 2007: "Her Majesty's focus on the support of excellence, creativity and innovation in education, improving the standards of living of households, including the protection of children from violence, and supporting early childhood development, and developing programs of income-generating projects and the advancement of the best methods in micro-credit financing "(3).
Sponsoring the launch of a web-portal for the finance industry in Jordan in 2007: "Her Majesty commended the efforts engaged in the development and growth of micro-finance industry in Jordan for the importance and positive effects in the fight against poverty, unemployment and improve the standards of living of families, not to mention achieving social justice and improving the status of women and opportunities for young people." (4 )
Her Majesty Queen Rania’s Website www.queenrania.jo
Excerpts from the website of Her Majesty Queen Rania Al-Abdullah for the period (2000 - 2007) showing Her Majesty's interest in the sector of Macro and Micro Finance:
Macro and Micro finance in Jordan dates back to 1960, when the Agricultural Credit Corporation was established, followed by the establishment of the Industrial Development Bank in 1965, and the General Union of Voluntary Societies in 1986, and then the Development and Employment Fund in 1989, which began its lending operations in 1991.
The nineties marked the establishment of a group of private sector institutions such as the Micro fund for Women, the Jordan Micro-Credit Company, AHLI Micro Financing Company, and the Middle East Micro-Credit Company.
The Development and Employment Fund and the Ministry of Planning and International Cooperation played an important role in this sector through the provision of finance, directly or indirectly, in addition to providing the necessary infrastructure for laws and regulations and developing a national strategy for this sector.
Currently, there are more than seventeen institutions operating in Macro and Micro-Finance, including six specialized lending institutions, in addition to the microfinance project in the Agricultural Credit Corporation (ACC). These institutions have 78 branches, 21 of which are for the ACC. The total value of these institutions’ loans reached 225.6 million dinars, and the credit facilities’ actual balance mounted to (82) million dinars in 2006. (1)
There are 28 banks in Jordan with 559 main and 91 small branches, and their actual balance of credit facilities amounted for 9.8 billion dinars in 2006 with an interest rate of 8.5%. Only three of these banks have lending activities in the microfinance sector.
DEF, Directory of Macro and Micro Finance Institutions in Jordan, 2006
As shown in Table (1), there are 37 Arab financial institutions registered in MIX Market with 1.6 million clients and a credit portfolio that amounted to 649 million dollars. Among these are six Jordanian institutions in which 461 employees work, and they contribute to 4.8 % of the total number of clients and 12.4% of the total portfolio of Arab institutions. It is worth mentioning that the six Jordanian institutions contribute to a total of 94.3% of the number of clients and 74% of total credit portfolios of the total Jordanian institutions operating in this sector .
Table (1): Comparison between Jordanian and Arab Institutions in 2006 Source: www.themix.org
In in 2006, the government’s action plan to combat poverty and unemployment focused on the reallocation of governmental resources to reduce these problems directly and effectively, and there was a recommendation "to increase the resources available to fund development, operation and microfinance institutions, having evaluated the performance of these institutions and the restructuring of the Fund. The Government is providing 2.5 million dinars to be re-lent from the Fund to the micro finance institutions (MFIs). .
Comparison: Microfinance Institutions in Arab Countries Financing Portfolio Value Number of Clients Number of Institutions
Average Comparison: Jordanian and International Macro Financial Institutions Source: MIXMarket ، www.themix.org - Micro banking Bulletin: 2006 Benchmarks Return on assets ratio Operational Sustainability Profit Margin Financial Performance Indicators
Source: MIXMarket ، www.themix.org - Micro banking Bulletin: 2006 Benchmarks Average Operational Expenses / Loans Average Cost per Loan Employee’s Average Productivity to Loan Efficiency
Outreach Number of Active Clients Percentage of Women Number of Active Loans
Credit Portfolio Average Size Credit Portfolio Average/Number of Clients Outreach
Why The Interest in Macro and Micro Projects in Jordan?
Department of Statistics’ industrial census figures for 2006 show that less than 5 people work in 92.2% of Jordanian establishments, and that 87.7% are individual institutions with 53.1%, making an annual income of less than 5,000 dinars. 60.7% are in the commercial sector, 23.7% in the services sector and 13.8% in the industrial sector.
Considered one of the best ways to limit the problems of poverty and unemployment (60% of the workforce).
The ability to produce exportable commodities and services that could also substitute imported ones.
The ability to create an added value in commodities and services.
Complements other big projects.
Characterized by its efficiency in using available resources and raw materials.
Provides a suitable environment for creativity.
Efficiently contributes to increasing the Gross Domestic Product (50%).
Gives ambitious youth the opportunity for self-employment.
The Industrial Development Bank was established in 1965. it funds development sectors whether including touristic, industrial or other sectors, to support the national economy through providing several ambitious financing products to respond to the needs of all sectors and big, medium-sized and small businesses. 1.2) Industrial Development Bank www.inedvbank.com : 1.1) Agricultural Credit Corporation / Small Enterprises Program www.acc.gov.jo : ACC was established in 1961. It aims to contribute to supporting and developing agriculture, quantitatively and qualitatively improving agricultural production, and improving citizens’ quality of living through providing the capital required for funding small agricultural projects. 25 million dinars were allocated for a five-year period within the program for small enterprises to combat poverty and unemployment. First: Institutions Working on Macro and Micro Finance in Jordan The Foundation was established in 1972 and started its loaning activities in 1988. It seeks to preserve and develop orphans’ money through religiously legitimate investment, such as funding productive projects. 1.3) Orphans’ Fortunes Development Foundation www.ofdf.gov.jo : A) Six Governmental Institutions Seventeen Macro and Micro Finance Institutions operate in Jordan. Throughout their history, they have provided 225.6 million dinars and financed more than 154,000 projects and provided 65.556 job opportunities (Table 2). Below is an overview of these institutions. Although loans financed by governmental institutions form 21.5% of the total number of loans with a financing value of 103.8 million dinars or 46.5% of the total finance, they provided 74.4% of job opportunities crated in this sector. These institutions are:
1.5) Housing and Urban Development Corporation www.hudc.gov.jo The Corporate was established in 1964 and started its loaning activity in 1995. It aims at providing housing to people with limited income, improving the status of random areas and contributing to formulating housing policies. 1.6) Ministry of Social Development (Productive Families’ Program) www.mosd.gov.jo The program seeks to encourage productive development initiative by individuals and local entities in order to enhance their productive and social efficacy under the Ministry of Social Development’s umbrella. 1.4) Development and Employment Fund www.def.gov.jo : The Development and Employment Fund was established in 1989 to mitigate the negative impact of the economic reform program. The Fund began its loaning and training operations in 1991 as financially and administratively independent governmental institution specialized in financing medium-sized, Macro and Micro enterprises.
B.1) Noor Al-Hussein Foundation www.irckhf.org.jo The Foundation initiated the loaning process in 1990, and it aims at developing the local community and setting national standards for excellence in the fields of human and social development through providing loans for small production projects and training the beneficiaries. B.2) The General Union of Voluntary Societies GUVS started loaning in 1991. Among its goals is to fund small productive projects through soft loans. B.3) The Jordanian Hashemite Fund for Human Development www.johud.jo: JOHUD started providing loans to small productive projects in 1992 with the purpose of creating job opportunities for the poor and the unemployed. B) Eight Private Non-Governmental Organizations The 100,726 loans provided by these institutions formed 65% of the total number of loans with a financing value of 94 million dinars; i.e., 44% of the total finance. They also provided 14,377 job opportunities; i.e., 23.7% of all created jobs. Below is a profile of each of these institutions.
“ Tamweelcom” was established in 1999, and it is a limited liability company that does not seek profit. It is completely owned by Nour Al-Hussein Foundation. B.5) Micro fund for Women www.micofund.org.jo : A non-profit, limited liability Jordanian company registered in the Ministry of Industry and Commerce in 1999. B.6) The Jordan Micro Credit Company (Tamweelcom) www.tamweelcom.org : B.7) AHLI Micro Financing Company (AMC) www.amc.com.jo : AMC was established in 1999, and it is a limited liability profit seeking company completely owned by the Jordanian National Bank. B.8) National Microfinance Bank www.nmb.com.jo The Bank started its loaning activity in 2006, and it fund Macro and Micro projects. B.4) The General Federation of Jordanian Women: Established in 1981, and contributes to funding women and female family-supporters in rural and less-privileged areas.
C) Three Foreign and International Entities C.1) The United Nations Relief and Works Agency (UNRWA) www.un.org/unrwa UNRWA started its loaning operations in 2003 under the umbrella of the United Nations. It aims at providing healthcare, educational and social services, relief and small loans to Palestinian refugees C.2) Middle East Micro Credit Company [email_address] : Founded in 1998, and delivers financial and banking services to owners of small and medium-sized projects. Loans provided by these institutions amount to 23,466 loans with a financing value of more than 27.8 million that have created 1,235 job opportunity. These institutions are: C.3) FINCA www.villagebanking.org : Still under establishment in Jordan.
Table (2): Micro Finance Institutions in Jordan 2006 Source: collected from Macro and Micro finance institutions’ annual reports
Jordan Industrial Estates Corporation www.jiec.com : Second: Institutions and Programs that Support Macro and Micro Finance Projects Jordanian industrial estates were established in 1984 as a public institution with partnership between the public and private sectors, and it contributes to the efforts to improve small and medium-sized in institutions by providing comprehensive industrial cities. IRADA / Enhanced Productivity Centers Program www.irada.org.jo : Enhanced Productivity Centers Program “IRADA” aims at supporting Jordanian citizens’ self-reliance and developing a spirit of initiative to help in advancing the Jordanian economy through providing new job opportunities for project owners and their staff and contributing to limiting the phenomena of poverty and unemployment. National Fund for Enterprise Support www.nafes.org.jo : The Fund seeks to help small and medium-sized private sector institutions in Jordan to become more qualified for competition through financial support to administrative development projects and training programs that aim at upgrading these institutions’ performance. VTC provides all levels of vocational preparation programs, or upgrading programs to better qualify practitioner workers in the labor market and improve the performance of small and medium-sized institutions and organize the Jordanian labor market Vocational Training Corporation www.vtc.gov.jo : Promoting and marketing debtors’ services and products in cooperation with the Civil Service Consumer Corporation Civil Service Consumer Corporation www.jcscc.gov.jo :
Microfinance Association of Jordan (MAJ): MAJ was founded in 2006, and it works on developing, improving, expanding, representing and supporting the microfinance sector in Jordan. It includes a group of institutions concerned with the micro projects sector. The Socia l Solidarity Coordination Committee The Commission was founded in 2006, and it seeks to coordinate the efforts of organizations working in the field of social solidarity to avoid duplication and waste of potential and resources. There are four coordination committees in the Commission, including a committee specialized in coordinating medium-sized, Macro and Micro projects, with members representing the public and private sectors. Jordan Post www.jordanpost.com.jo : Resources available at the network of Jordan Post offices around the Kingdom are made available for providing Macro and Micro finance institutions’ services. Jordan Loan Guarantee Corporation www.jlgc.com : The company was established in 1994, and it aims at providing the necessary guarantees to completely or partially cover the risks of loans provided by banks and all kinds of financial institutions.
Third: Services Provided to Macro and Microfinance Sector Clients A) Financial Services: Jordanian institutions provide Macro and Micro project finance services in accordance with the Islamic Murabaha Principle and/or commercial interest. Main financing programs are categorized as follows:
Start-up projects to create new job opportunities
Financing existing projects: to create new job opportunities or maintain the ones already there
Revolving trust fund: to improve citizens’ quality of living and crating job opportunities
Financing home-based projects: to improve Jordanian families’ quality of living by enabling them to work from home
Training and qualifications: to enable citizens to work and manage their own projects of boost their chances to enter the labor market.
Marketing products: through displaying and promoting them in order to maintain projects’ sustainability.
Insurance on debtors’ life: to protect their families from the burdens of paying debt off in case debtor passes away.
Health insurance for debtors: in cooperation with the Ministry of Health; for debtors not covered by health insurance programs.
Economic feasibility studies; providing debtors with the required and necessary studies to enable them to attain required funding
Need Assessment Field Surveys: to interact with grass roots and come up with a list of training and financing needs for each region, taking into consideration the competitive advantage Of each region.
Motivational initiatives: to help in introducing and promoting the sector and spreading the culture of Macro and Micro finance. Some of these initiatives are:
Kind Abdullah’s Award for Excellence and Free Enterprise: awarded annually to the best three outstanding small businesses in the Kingdom.
Citibank’s annual award for micro projects.
School scholarships for debtors’ children.
Umrah trips for female debtors
The Aqaba Development Corporation Award: awarded annually for Macro and Micro business owners in Aqaba only.
In addition to the non-financial services of financing institutions, there is a group of institutions that provide supporting services to this sector (BDS). Among the most important of these services are:
Fourth: Coverage of Macro and Micro finance institutions’ services
Although the services of Macro and Micro finance institutions combined cover the Kingdom’s three regions, there are certain areas, especially the countryside, that still lack these services. an exception are the Agricultural ..Corporation and Development and Employment Fund services which cover all areas including the countryside (23% of the total credit portfolio Was spent in the countryside). On the other hand, unemployment percentage in rural areas amounts to 18.7% as opposed to 13.3% in urban areas, while finance is mainly concentrated in urban areas and major cities (urban finance)
Upon analyzing unemployment rates per region, we find that the southern region has the highest rate, surpassing 21% while the total financing percentage in the aforementioned region does not exceed 13.5%, which means the necessity of enhancing these institutions’ activity in this region (Table 3)
Table (3): distribution of funds by regions A) Geographical coverage
Department of Statistics – Employment and Unemployment Survey – Nov 2006
Reports of small and medium-sized finance institutions
The central region is still dominant in terms of the number of financed projects and the total finance value. This allocation is natural considering the population of this region which forms 63% of the Kingdom’s population, as well as this region’s economic activity which forms 80% of the total economic activity.
As pointed out earlier, the activity of institutions concerned with financing Macro and Micro projects geographically extends to cover all regions in the Kingdom through a team of 461 staff working in 57 branches of these institutions, most of which are concentrated in in the central region forming 69% of these branches. Adding the services of the small loans project through the ACC 21 branches and the 3 UNRWA branches, the number of all institutions’ branches would reach 81 or 14% of the total number of Jordanian banks’ branches. (Table 4) Table (4) Geographic distribution of Macro and Micro finance institutions 23
as illustrated in Table 5, 63,000 women have benefited from the services of Macro and Micro finance institutions, which equals 70% of the total number of this sectors’ clients. These loans positively contribute to enabling Jordanian women to improve their families quality of living and provide seasonal or permanent job opportunities for women, taking into consideration that most of these projects are home-based. Moreover, upon reviewing women’s unemployment percentage, we realize it is two times men’s unemployment percentage, which necessitates directing more funds to women for this sector to become the main alternative for employing women. Table (5) Finance distribution by gender B) Coverage by gender: Source: - Department of Statistics-Employment and Unemployment Survey, 2006 - Small and medium-sized finance institutions’ reports. University degree holders have received the major part of the funding with a percentage exceeding 34%, while unemployment rates were the lowest among this category (11.3%) – that is lower than the general average. On the other hand, the highest unemployment rate was among college and diploma degree holders with a rate of 16.8%, while financing this category ranges between 8.9% and 18.6%, which emphasizes the need for this sector’s institutions to initiate paying more attention to this group like the Civil Service Bureau which undergoes the DEF (Table 6) C) Coverage by academic qualification Table (6) Finance distribution by educational qualification Source: - Department of Statistics-Employment and Unemployment Survey, 2006 - Small and medium-sized finance institutions’ reports.
Although the highest unemployment rate is concentrated within the age category of 15-19, reaching 36%, finance has only reached 0.2%. This is due to the fact that finance starts with the age group of 18 years…, while finance rate was the highest for the age category of25-39, with a percentage of 59%. This is natural since people in this age category tend to be mature and confident about their planned career path. This group forms 20.5% of ..included in financial coverage (Table 7) Table (7): Finance distribution by age category D) Coverage by age group The services sector dominates the largest part of Macro and Micro finance with more that 71% of the total finance value and 75% of the total number of projects. This goes in line with the ?? Of the services sector to economic sectors in Jordan. (Table 8) E) Coverage by sector Table (8): Finance distribution by sector Source: DEF Source: - Department of Statistics-Employment and Unemployment Survey, 2006 - Small and medium-sized finance institutions’ reports.
Geographical Distribution of Macro and Micro Finance Institutions in Jordan
Focusing on financial performance with no attention to social performance through conducting a study on the economic and social impacts of Macro and Micro finance sector’s loans on the beneficiaries.
In 1998 and 2003, the Development and Employment Fund in cooperation with the Royal Scientific Society conducted an impact analysis by field surveys than included the Fund’s beneficiaries only ( www.def.gov.jo )
In the end of 2006, the Ministry of Planning and International Cooperation assigned Planet Finance to conduct an impact study on a sample of seven institutions working in this sectors.
The results of these studies were generally positive, and there is a feeling of satisfaction about these projects’ role in improving citizens’ quality of living and providing job opportunities.
Economic and social impact studies are a major source ..improving this important sector since they largely contribute to putting forward future plans for finance institutions, as well as correcting their path and upgrading their programs and services. Despite the importance of focusing on working on a commercial basis, it is also significant to preserve these institutions’ social responsibility. The current situation in Jordan can be summed up as follows.
Sixth: The role of self-employment in combating unemployment
Department of Statistics, Employment and Unemployment Survey, 2006
Development and Employment Fund, The Status Quo of the Fund’s Role in Microfinance, Credit Portfolio Analysis as in 31 Dec 2006.
Since 1991, the Macro and Micro finance sector has provided around 60,550 job opportunity in different sectors and in all areas in the Kingdom (Table 2)
In 2006, 35,166 job opportunities were created through the public and private sectors. Upon adding the 8,162 self-employment opportunities provided by Macro and Micro finance institutions, the total becomes 43,328, which means that self-employment forms 19% of all created opportunities (Table 9)(1)
The cost of job opportunities in the public sector is around 21,000 dinars, as opposed to the cost of self-employment opportunity’s cost of 3,000 dinars. Studies indicate that against the cost of creating one job opportunity in big projects, nine self-employment opportunities can be created in small projects.
Job opportunities crated out of self-employment (Macro and Micro finance) were spread around the different governorates of the Kingdom. The Capital had only 35.4% of these opportunities as opposed to 50% of the job opportunities created in the public sectors.
21.7% of the crated job opportunities in the public and private sectors went to females as opposed to 70% of self-employment opportunities, which means that self-employment contributes to women’s economic empowerment and that the tendency to finance females is the right path towards fighting unemployment among women.
Most Macro and Micro projects’ finance is used to enhance up and running and home-based projects, while finance for new projects’ start-up has not exceeded 10% by most finance institutions, except for the Development and Employment Fund where this percentage surpasses 65%, which consequently reflects in the crated job opportunities. (2)
Royal Scientific Society, Study of the Fund Loans Economic and Social Impact on Beneficiaries
General Budget Department
All projects funded by DEF are in the formal sector, thus contributing to providing new job opportunities of maintaining the current ones. On the other hand, the nature of projects funded by other institutions lie in the non-formal sector.
DEF’s loaning programs have been restructured, and the increased focus is On direct loaning of small and medium-sized projects by raising the loan ceiling to 15,000 dinars instead of 10,000 was to focus on financing small projects that provide job opportunities.
Every project financed by DEF provides two crated job opportunities, according to the Economic and Social Impact study conducted on DEF’s beneficiaries. (1)
As illustrated in Table 9, with the exception of DEF which only finances projects that generate job opportunities, finance amounts Is mainly used in home-based projects or up and running projects with the purpose of improving the debtor’s quality of living of maintaining the sustainability of available job opportunities. This explains the big rise in job opportunities’ cost in other finance institutions.
Governmental structuring table introduced 7,960 new job opportunities in the public sector which dropped to 3,500 in 2007, which implies to the need to move forward towards financing more small projects finance to meet the increasing job demand. (2)
Table (9) Job opportunities introduced by self-employment (Macro and Micro finance) in 2006
Key challenges faced by Macro and Micro finance sector
Fin ancing gap amounts for around 39 million dinars (1)
Outreaching target groups (Potential clients: 106,000 citizens)
A database has been provided? (Micro financing Association of Jordan)
Coordination between private and public sectors’ institutions (the Social Solidarity Coordination Committee)
Lack of awareness on the importance of small and medium-sized projects
Organizational capacity building for the voluntary and non-governmental sectors
Shortage in loaning project / product development
The need for more institutions specialized in providing services .
(1) Identification of appropriate financing instruments and technical assistance to further support the microfinance sector in Egypt, Gaza West Bank, Jordan, Lebanon and Syria, Internal EIB funded study, Final Report, July 2006 . (2) International Finance Corporation IFC.
Annex (1) Population data for 2006 Source: Department of Statistics MFIs’ reports
Annex (2) Main indicators for MFIs, Jordan, 2006 Source: DEF, Macro and Micro finance institutions 2006 MIXMarket ، www.themix.org Jordanian Dinar
Annex (3) Comparison of financial indicators for microfinance institutions in Jordan in 2006 Source: MIXMarket ، www.themix.org