Ellie Howard travelled to Amman, Jordan in 2012 shadowing the work of Microfund for Women, both in the office and in the field. As well as completing an entry to the Grameen Jameel awards, and carrying out desk research, Ellie interviewed various staff within the organisation. Content is also derived from interviews with other organisations in the region such as FINCA and Jordanian Insurance Company. Ellie_howard@hotmail.co.uk

1. The Entrepreneurial Poor
A presentation on microfinance in the
Middle East by Ellie Howard

2. Contents
• Introduction to microfinance
• The target market
• Microfinance activities
• Demand
• Impact
• The media
• Lessons for the region

3. “When the powerless start to see that
they really can make a
difference, nothing can quench the fire”
Leymah Gbowee

4. What is microfinance?
• Pioneered by Muhammad Yunus of Grameen Bank in the
1970s, microfinance involves making small loans to the poor who
are unable to acquire credit from commercial lending
institutions due to a lack of collateral and credit history.
• Loans are used by the borrower to start or expand their own
business.
• Businesses generate income, increase self confidence and help
clients reach self sufficiency, improving their own quality of life
and that of their families.
• With a growing track record and over 150m families receiving
loans globally (Microcredit Summit report 09), borrowers have
shown a low risk of default, with ‘portfolio at risk’ averaging
around 1%.
• As part of the evolution from microcredit to
microfinance, microfinance institutions (MFIs) also offer other
financial products such as microinsurance as well as business
development and social services.

5. What is an MFI?
• Microfinance institutions are registered as either non
profits or limited liability companies (LLCs) in Jordan.
• The largest MFIs in Jordan serve in excess of 60,000 clients
with a loan portfolio exceeding $25m.
• Whilst unregulated, MFIs are rated on adherence to
social mission, social performance (including impact on
gender equality, education and health) adaptation of
services to meet client demand, cost of
services, responsible pricing, fair and respectful
treatment of clients, ethics in finance, human resource
management and labour policy.
• MFIs are supported by grants and loans from
government and the global donor community as well as
finance from institutional investors and funds. Some MFIs
have also developed holding companies, enabling
them to sell a minority share to global organisations with
a social mission.

6. Who is the target market?
• 56% of adults do not have access to basic financial services -
64% of them live in developing countries (Ardic, Oya Pinar et
al, World Bank).
• In Jordan, MFIs primarily focus on serving the female population
below the poverty line who live on less than $2.6 a day
(CSS, University of Jordan 2008).
Why women?
• Women represent 70% of the world’s poor and are subject to
more forms of systemic discrimination than men
(Women, Poverty and Economics, UNIFEM).
• On average women (18-65) invest 90% of earned profits back
into their families, while men invest only about 30 to 40% (Chris
Fortson for the Girl Effect).
• Women reinvest in family education, healthcare and
improvement to their homes, enabling themselves and their
communities to break free from the negative cycle of poverty.
• In addition, becoming wage earners improves the social status
of women in society, contributing significantly to gender
equality.

7. Demand
• The Global Financial Inclusion Database estimates 300,000
potential microfinance clients in Jordan – this includes small
businesses, private loans and non financial services.
Immigration due to the Iraqi war has contributed to growth
of the market.
• The most favourable enterprises are trade or service
orientated – examples include dry cleaners, tailors and
manufacturers of dairy products.
• Clients look at wealth generation as a means to an end, to
buy food and clothes and to educate their children.
• Primary education is of particular interest, and MFI clients
suggested that they would like non financial services to
expand to include the schooling of their children.
• MFIs operate in poverty pockets throughout Jordan as well
as in Palestinian refugee camps.
• However, some argue that microfinance is unable to reach
the ‘poorest of the poor’ and that it is a role of government
to provide grants to the most dependent families.

8. Typical Microfinance
Institution (MFI) offering
By consistently striving to initiate and advance client driven products, the
breadth and depth of microfinance services can be extended:
• Group loans including seasonal loans (approximately
60% of clients).
• Individual loans for established businesses and maternity
(approximately 40% of clients).
• Microinsurance, both life and hospitalisation - including
families.
• MFIs also look to achieve their social mission through the
use of non financial services:
o Capacity building and training
o Market linkages
o Social services
o Educational opportunities
A typical loan size is around 544USD, with annual percentage rates (APR) ranging
from 27 – 41% producing a portfolio yield of around 45%.

9. Typical microfinance loan process
From start to finish the process averages around 2-3 days
Client visits branch and completes application form.
Application is assigned to a loan officer, who has up to 500 clients in her care under any one branch
– she visits the project to verify credibility.
Documents are then sent to the Head Office credit department, where signatures are approved
and documents validated. If clients are refugees, their identity number is used instead.
The finance department then determines loan amount (approx $141 – $14,100), term (approx 4-36
months) and interest rate (which varies across products and clients) and instructs the treasury to
distribute cheque.
Where neighbours have joint (social) collateral via one application, one client is responsible for
repayments. Assets are never used as collateral.
Repayments are deposited at the branch by clients, where their outstanding debt is altered on their
ID cards. ‘Tellers’ then coordinate with banks to avoid banking time being taken up by small
deposits.

10. Microinsurance
• Life insurance is the ‘starting point for MFIs to penetrate the
microinsurance sector’, protecting MFIs against client death and
loan default – some MFIs also award a lump sum (up to 80% of
loan) to clients’ families.
• Usually, microinsurance products are mandatory. This measure
insures the bulk of clients against financial instability, reduces risk
and lowers premiums. Products cost in the region of 1JD a month.
• Some MFIs offer voluntary and free insurance to the families of
clients.
• MFIs also offer hospitalisation insurance, which covers illness and
pregnancy. Clients can can claim approximately 15JD a night for
four nights of every months of their loan – MFIs operate a cap, of
30 nights continuous stay.
• Whereas Jordanian life insurance is tax exempt, hospitalisation
insurance isn’t - innovative MFIs use a rider on the same contract
which can reduce costs by up to 16%.
• Claim frequency and profitability data - obtained through
monitoring - enables MFIs to negotiate with partner insurance
companies to increase client benefits (e.g. 50% more claim value
per night in hospital). Satisfaction of product rather than
decreased cost is the preferred way to add value.

11. In the field
• Branch network managers are described as the ‘lungs MFIs
breathe from’. They operate a hierarchical structure: Branch
network manager – branch manager – senior loan officer –
loan officer – teller – admin.
• BNMs decide where to open new branches or expand into
new areas - central marketing departments then work to
promote MFI offering to potential clients through the use of
promotional materials.
• As well as receiving training and development provided to all
staff, field staff (which constitute a high percentage of staff)
receive basic salaries, loan disbursement incentives and
follow up incentives such as mobile phone and transportation
allowances.
• Incentives are linked to quality of portfolios determined by
PAR (portfolio at risk) on a sliding scale.
•
•

12. The media
• MFIs’ relationships with the media in Jordan are largely
positive, with cooperation taking place for mutual
benefit.
• Whilst looked at as non profits working to improve the
lives of low income women, articles are often placed in
the ‘economic’ sections of national newspapers.
• On an international level, there has been some
negative press surrounding overindebted clients, high
profits and a lack of transparency, but this has been
buffered by the development of regional groups such
as ‘Tanmeyah’, a recently formed microfinance
network comprised of the seven largest MFIs in Jordan.

13. Impact – Economic development
• In recent years, Jordan’s Gross National Income per
capita has grown, with Human Development Index
figures above other Arab states in the MENA region.
• The percentage of individuals below the poverty line has
fallen, with Jordan on track to achieve most of its
Millennium Development Goals.
• It is suggested that microfinance has contributed
through improving the socio-economic situations of the
‘informal sector’.
• By boosting the financial awareness, education and
productivity of low income women, microfinance
continues to greatly increase the living standards of
many Jordanians.
• Other extraneous variables include the Government’s 10
year National Strategy to Alleviate Poverty, launched in
2005.

14. Impact - Gender equality
• Whilst the literacy standards of Jordanian women are
relatively high at 87%*, microfinance works to improve
female work force participation which currently stands at
12%*, one of the lowest rates in the Arab region.
• By educating women about equality, health and
business, and providing them with much needed financial
skills, microfinance fosters the self esteem of low income
Jordanian women, empowering them both economically
and socially.
• Other extraneous variables include the efforts of the
constitutional monarchy under King Abdullah II, such as
the move to a compulsory women’s quota in Parliament
in 2002.
*Microfund for Women, Annual report 2010

15. Impact - Political stability
• One of the main contributing factors to political
instability is societal frustration with existing living
standards.
• Therefore, by helping to bring low income women
and their families above the poverty line through
investment in enterprise, microfinance works to
stabilise community frustration, reducing the risk of
domestic disequilibrium.

16. Lessons for the region –
regulation
• It is widely accepted that the regulatory environment in Jordan holds
back the growth of the microfinance sector. Currently the industry is
unrecognised and unsupervised with any legal entity able to provide
loans.
• MFIs are unable to offer savings products, which results in clients using
loans to cover life events such as maternity and university education.
In addition this restriction results in little variation between products
offered by different MFIs.
• Clarity on the registration of MFIs is also found wanting, with many
registered as non profits but producing large returns, reflecting the
push and pull between charity and commerce. This negatively
affects the attraction of institutional lenders, with many investors
concerned about the consequences of potentially taking action
against organisations registered as non profits.
• Reporting is also an issue with guidelines on which Governmental
department to report to remaining unclear.
• In 2012, the Central Bank of Jordan committed to studying the
possibility of regulation and is expected to shortly publish an analysis.
•

17. Lessons for the region –
measurement and transparency
• The microfinance sector in Jordan requires a fully reliable monitoring system in
order to measure efficiency, profitability and cross-selling rates within the market.
• Currently, a lack of standardised metrics, information and reporting practices in
Jordan prevent the adoption of - and investment in - new products such as
savings accounts due to poor visibility.
• In order to attract mainstream financial institutions, professional managerial and
operational practices (such as simple complaints processes) and clear social
missions need to be communicated widely.
• This also applies to platforms that facilitate overseas retail investment, where
there is often confusion about the destination of invested monies due to a
miscommunication of fund structures.
• Information brokers such as The Social Performance Task Force, MixMarket
(MicroBanking Bulletin), the Microfinance Information Exchange (MIX), founded
by CGAP, SMART Campaign and The Microcredit Summit Campaign (Seal of
Excellence) continue work in this area.
• In terms of measuring impact on poverty, MFIs also struggle, with some adopting
the Progress out of Poverty Index (PPI), supported by Grameen, to measure their
clients’ poverty levels and track changes of those levels over time.

18. Lessons for the region –
financial education
• With spending on non financial services currently around 2% of
operating expenses, it is recognised that MFIs in Jordan need
to develop much needed development programs – in
particular those that focus on financial education - to increase
both investment readiness and the value of loans.
• This may have a positive affect on the landscape in terms of
shifting the focus from intermediaries to the ventures
themselves.
• It has also been suggested that the subcontracting of these
services to projects such as Middle East Partnership Initiative
(MEPI) is beneficial in order to avoid conflicts of interest.
• Universities may have a role in developing this culture, and
MFIs could partner with reputable institutions to foster such
ambitions at an earlier stage.
• By developing awareness of business practices, women on
low incomes are more likely to grow their businesses to
scale, however MFIs must recognise that it may not be in
clients’ interests to mature their enterprises to a stage where
they can eventually take on equity investments.

19. Lessons for the region -
technology
• MFIs in Jordan are well equipped with
computers, printers and telephones and field staff
admit that ‘technology makes life easier’.
• Some suggest that the introduction of scanners
could speed up the loan process, however there are
concerns that ‘too much technology’ creates a
divide between MFIs and their clients.
• Mobile banking remains nascent, with many clients
reluctant due to a lack of understanding.
• Although mooted as a ‘vehicle’ for
microfinance, and successfully demonstrated in East
Africa, mobile banking requires robust business
models, not yet consistently seen throughout the
region.

20. Lessons for the region –
scaling up
• With the microfinance market in Jordan reaching saturation, many MFIs
are looking to broaden their focus to ‘inclusive financial services’.
• Partly, this development requires closer collaboration with mainstream
financial institutions, some of which already work in this area, focusing on
CSR initiatives or research on Islamic finance.
• However, due to the limited ambitions of some clients and the low returns
of their ventures, it may be that retail banks, currently experiencing low
returns in developed countries, are more suited to the space than
investment banks who focus on MFI’s client outreach and are keen to
scale enterprises in preparation for IPOs.
• As seen in India, organisations could issue bonds guaranteed by the
Government, although ‘overfinancing’ can cause standards to fall.
• In terms of private investment, investment by high net worths in MFI
holding companies has potential through the use of revenue funding –
ensuring adherence to social mission.
• Other approaches with scope to scale include web based peer-to-peer
microlending platforms such as Zidhisha which directly link borrowers to
lenders, reducing admin time and boosting competition.
Financial exchange risks must be considered due to a difference in
currency, however the Jordanian Dinar is currently pegged to the US Dollar.

21. Afterword
Ellie Howard travelled to Amman, Jordan in 2012
shadowing the work of Microfund for Women, both in
the office and in the field. As well as completing an
entry to the Grameen Jameel awards and carrying
out desk research, Ellie interviewed various staff within
the organisation.
Content is also derived from interviews with other
organisations in the region such as FINCA and
Jordanian Insurance Company.
Ellie_howard@hotmail.co.uk