Interview: Samir Jaradat
Do capital markets authorities need to give investors a broader range of investment tools and products to create greater depth within the exchange?
SAMIR JARADAT: Investors in Jordan should be given a wider array of tools that cater to their diverse needs and interests, and that reflect changes in the global financial markets. Whereas some investors prefer ownership, others like to generate returns from extending loans.
More and more, investors in the Middle East and North Africa are interested in sharia-compliant tools, for both cultural and practical reasons. The Jordanian government should welcome and cultivate this growing interest because Islamic financial papers would create another channel of liquidity in the marketplace, which in turn would drive growth across several sectors of the economy. Islamic papers, for example, could help fund capital-intensive public infrastructure projects, which are sorely needed given the country’s growing population and annual influx of refugees from neighbouring countries. Moreover, Islamic instruments could be used for income generating projects that could help grow the kingdom’s strategic industries.
Further, there are many businessmen from advanced economies in the Gulf Cooperation Council (GCC) and the wider Arab world who want to invest along Islamic lines, so the emergence of an Islamic investment market in Jordan might facilitate greater levels of foreign direct investment. The partnership between Jordan and Arab investors has been long and fruitful, with Arab investment in the bourse consistently ranging between 33% and 37% of market capitalisation.
In 2011, we saw an example interest in Islamic papers with the local sukuk issuance to Saudi-based Al Rajhi Cement Jordan, which brought together a number of the kingdom’s prominent financial institutions. Still, because this was a private sukuk, some regard this issuance as a missed opportunity. If this had been done through a public offering, under the direct purview of the capital markets regulators, it might have represented a more obvious precedent for further issuances.
Ultimately, what we need for an Islamic financial market is an Islamic financial system; in other words, the government needs to ensure that the technical and legal infrastructure for trading is in place. A law that would create such an infrastructure for Islamic sukuks was proposed in parliament in 2012. A key pillar is to establish an overarching sharia-compliance committee akin to the bodies that exist in Bahrain, Turkey and Malaysia.
What other reforms are needed to stimulate confidence and activity in the Amman Stock Exchange?
JARADAT: Along with Islamic papers, the authorities should introduce more complex instruments such as derivatives, forward contracts and short selling. Before doing so we must ensure that local market players understand how to use these tools carefully. We need to enhance the level of financial awareness among Jordanian investors, many of whom are guided by rumour and not well versed in the art of valuation. Indeed, one way to support individual investors without great expertise is to introduce institutional funds into the market. This would protect investors in a more complex market, and help to ensure overall stability.
Another reform should take place within the market for government bonds. Currently, bonds and issues from the public treasury are only made available to banks in Jordan, and not to the public, which is largely restricted to purchasing shares. Moving forward, the Central Bank of Jordan and the Jordan Securities Commission need to alter this policy, which is designed to control the exchange rate and the cost of living to address the strong and growing demand for government-guaranteed instruments.
Of course, when discussing and proposing reforms to the capital markets in Jordan, one issue to consider is the fact that the government, which is facing severe budget deficits and unrest on its borders, has other issues that it must face. Yet, financial markets are key drivers of economic growth, and we should not neglect or unnecessarily interfere with their operations.
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