It is hard to overstate the importance of the role played by Jordan’s small and medium-sized enterprises (SMEs) in the wider economy. The nation’s historical role as safe haven in a politically turbulent region has seen it welcome migrants from far and wide, most notably Palestine, Iraq and – more recently – Syria. Many have brought their capital with them, and deployed their business know-how to establish shops and small companies in Amman and other urban areas, activities which have served to enlarge the nation’s economy. The successive population inflows over recent decades have also resulted in more demand for goods and services, and a virtuous circle of sorts has been created with new arrivals feeding into both the demand and supply streams of the economy. While in some instances, such as with the present influx of refugees from neighbouring Syria, immigration has presented the government with humanitarian challenges, for the most part the economy – and in particular the SME segment – has benefitted from Jordan’s status as a preferred destination for those escaping regional strife.
According to the Jordan Enterprise Development Corporation (JEDCO), a body established by the state in 2006 to help enhance the competitiveness of the nation’s enterprises, 99% of all employers are SMEs, and 52% of the private sector workforce makes its living within the SME segment. In addition, SMEs also account for virtually all of the net new jobs in Jordan, and provide 96% of all goods exported from the country.
Given the prominence of SMEs in the Jordanian economy, it is not surprising that a large number of government-backed programmes have been established in order to assist their growth. Each of them is tasked with a different goal in relation to SME development. JEDCO’s principal objective is to boost SME exports and substitute imports with equivalent or better local products and services – a particularly important ambition in the context of a national trade deficit which grew by 8.6% in the first 11 months of 2013 to reach $1.2bn. As well as its Export Promotion Programme, the organisation administers the Jordan Upgrading and Modernisation Programme and the Jordan Services Modernisation Programme (JSMP), which aim to enhance the quality of services and products provided by local SMEs. The JSMP initiative is funded by the EU, and is an example of the government’s success in establishing partnerships with international governments and institutions as it strives to boost the performance of the SME sector. Other international agreements have brought tangible benefits in recent years. The National Fund for Enterprise Support is a joint effort between the governments of Jordan and Japan, and assists SMEs with the implantation of development projects – with an emphasis on areas such as IT systems, consulting and human resource development. More international assistance comes in the form of the US Agency for International Development (USAID) Jordan Economic Development Programme, a broad economic development initiative focused on private-sector growth and implemented in Jordan by USAID and Deloitte Consulting. The Tatweer project is a second initiative funded by USAID, and it is managed by the Business Development Centre, with the aim of boosting SMEs’ competitiveness and export capacity.
Access to finance for SMEs is an issue in most economies, but obtaining granular detail as to the nature of the problem is usually a challenge. Most SMEs will respond, if asked, that they would prefer easier access to credit in order to grow their businesses, while banks tend to counter that SMEs are frequently unable to meet their requirements in terms of accounting standards, levels of transparency and strategic planning – all of which are necessary for proper, risk-based lending. In Jordan, at least, a recent survey by the Jordan Strategy Forum has directed some much-needed light at the question of how much demand there might be in the SME segment for greater access to business loans. According to the survey’s findings, only 42% of SMEs find the current provision of financial services, such as loans, warranties and letters of credit, to be adequate to their needs. Individual comments recorded in the survey revealed that many sector participants feel that the banking system is unable to serve the SME sector, while others cited their lack of experience in dealing with financial institutions as a block to obtaining credit.
According to a 2012 statement from the former minister for planning and international cooperation, Jafar Hassan, SMEs receive only around 10% of all the loans extended by financial institutions. Conscious of this problem, the government has taken a number of steps to remedy it. One of the most important of these is the Banking Window Programme, which aims to increase SMEs’ preparedness for entering the banking world, while maximising their chances of securing loans and other types of assistance. The programme addresses banks’ concerns regarding lending risk through a loan guarantee scheme (LGS). The scheme is funded under the JSMP, which itself is co-funded by the EU and the Jordanian government. Under the LGS, both medium-and long-term loans from commercial banks to SMEs are either fully or partially guaranteed, subject to bank and LGS approval. The JLGC can guarantee a maximum loan of JD100,000 ($141,260) for SMEs or JD15,000 (21,189) for a micro-enterprise, and since June 2012 its activities have been extended into the Islamic banking segment through its Kafala programme. The government has also inked a $70m loan agreement with the International Bank for Reconstruction and Development, which will be used to finance micro-projects and SMEs through loans offered by the central bank to licensed banks at subsidised cost.
The routes to financing open to SMEs are also broadening beyond the traditional lending format. The government has established two venture capital funds, first approved by the Cabinet in 2009, which are overseen by JEDCO acting in partnership with the European Investment Bank. The Capital Growth Fund aims to invest in mature SMEs incorporated in Jordan that employ less than 250 employees, targeting non-listed companies that are well established, in possession of a strong business plan and are ready to expand. The Early Stage Fund, meanwhile, targets non-listed SMEs that have tested a product or service and are preparing to implement a commercially viable strategy.
Work is also under way to overhaul the legal framework surrounding SME financing, with a focus on four complementary axes: credit information, secured lending, insolvency law and microfinance law. Finally, scheduled to begin operations in late 2014, a new credit bureau promises to enhance the banking sector’s ability to engage in transparent, risk-based lending to individuals and the nation’s increasingly important SME sector. These developments, combined with an increasing interest in SME lending on the part of banks, are encouraging signs that the challenge of financing the growth of Jordan’s SMEs, while still substantial, is being effectively tackled by the authorities.
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