Facilitating access to finance for Jordan’s SMEs

Jordan is intensifying efforts to provide support for start-ups and small and medium-sized enterprises (SMEs) by easing access to financing.

Rising public and private investment in Jordan’s digital economy contributes to an optimistic outlook despite some continued obstacles to conventional bank finance.

In need of funding

According to the 2011 census, roughly 98% of all companies in the kingdom are micro-enterprises or SMEs, employing some 71% of the private sector labour force – though this share dips to 31% once public sector workers are included in the total, as per OECD figures.

Moreover, SMEs account for upward of 40% of Jordan’s total nominal GDP, making access to finance for SMEs key to the country’s economic development.

However, in a survey of the business environment of Jordan and surrounding countries, the European Bank for Reconstruction and Development (EBRD) reported that more than 70% of SMEs in Jordan are credit-constrained, compared to 19.7% of large businesses, while a 2012 EBRD survey found that 36% of small businesses in Jordan perceive access to funding as either a major or very severe obstacle to their operations.

This is particularly true for start-ups with no credit history and limited collateral.

Government support

Work is being done to bridge the financing gap for SMEs, as the government has pushed through initiatives with banks and multilateral institutions to offer more credit to smaller businesses.

Jordan’s private credit bureau – established last year by Italy’s CRIF and overseen by the Central Bank of Jordan (CBJ) – is expected to ensure better monitoring of borrowers, which should increase the ease of doing business in the country.

Wider availability of credit information should also enhance the transparency of smaller businesses, allowing for lenders to make more informed decisions.

The CBJ has offered funding to Jordanian banks at lower interest rates in order to offer SMEs lending at preferential rates, Nemeh Sabbagh, CEO of Arab Bank, told OBG late last year.

In addition to calling for improved access to finance for small businesses, the CBJ has made JD1bn ($1.4bn) available to SME lending programmes, according to Ziad Fariz, governor of the central bank.

Another public body – the Jordan Loan Guarantee Corporation – is working to expand its services to local businesses. The company, which was created to provide export credit and finance guarantees for SMEs, recently tripled its capital to expand its supporting role.

Push for digital economy

As one of the most developed and robust ICT markets in the region, the public sector has also pivoted toward developing programmes designed to expand Jordan’s role as a centre for entrepreneurship and innovation.

Oasis500, the government’s flagship seed investment company, has been active in financing primarily tech start-ups since its establishment in 2010 by providing between $30,000 and $50,000 for each venture.

As of last year Oasis500 had invested in 95 companies, with plans for more as it diversifies its current investment portfolio. As part of this push, the company announced in August 2015 that seven tech start-ups had benefitted from its latest round of investment funding, including gaming company Play3arabi, e-commerce platform Top Steering, real-time data transmission platform Digat and technical solutions provider Visual Diamond.

Private sector participation

Despite these initiatives, more needs to be done for SME funding, Sabbagh said during the Euromoney Conference in April.

While public support should provide a catalyst for growth, long-term viability will also depend on the amount of private investment the SME and start-up sector can generate. However, here, too, there are some promising signs.

In late March liwwa, the Amman-based peer-to-peer sharia-compliant lending platform, received $2.3m in seed investment from DASH Ventures, with participation from Bank al Etihad and MENA Venture Investments.

The platform allows borrowers to bypass traditional approval processes from conventional lenders, allowing SMEs and start-ups to source funding directly from other users.

“In order to truly make capital available for the SMEs that need it, we have to use technology to achieve economies of scale and drive down the costs of the SME lending process,” Samer Atiani, CTO of liwwa, told industry media last month.

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