Kholoud Saqqaf, Executive Vice-President, Arab Bank, on SME financing and job creation


Given the current economic situation, the private and public sectors have to rethink their strategies on stimulating economic growth. With rising energy and commodity costs, the pressure is on to find solutions to serious economic challenges. There is no doubt that addressing unemployment and the need for job creation are at the heart of the issue. Finding effective solutions for the country’s labour force can improve standards of living across the board and support sustainable and inclusive economic growth.

The unemployment rate in Jordan hovered around 13% in 2011. A key challenge is that the youth ( 15-24) unemployment rate is significantly higher than the national average. This poses a challenge for young people who are university graduates and are searching for their first job. Besides being a major frustration for young people, it represents an untapped resource for the economy. With the current regional situation, job creation is high on the list of priorities for governments and private sector institutions.

Despite all of these challenges, there is a silver lining. Jordan’s population is young, well-educated and eager to contribute to the economy. There is plenty of room for creating jobs, and if utilised, Jordan will not be hard pressed to find qualified and dynamic young workers. One area that is brimming with promise and potential is the small and medium-sized enterprise (SMEs) segment. SMEs are engines for growth and productivity in Jordan, where they make up over 90% of enterprises. As they provide the majority of new jobs and produce much of the creativity and innovation that fuels economic progress.

Although statistics to measure the broad effects of SMEs on the Jordanian economy are not available, a key part of any economic development strategy involves a focus on local strength and the expansion of core competencies. There is much value in examining ways to promote economic growth by expanding the operations of existing SMEs, which could well become the backbone of the Jordanian economy.

For banks, stepping into the field of SMEs is easier said than done, however. As with any potential growth segment, there are some obstacles. SMEs often lack proper feasibility studies, a track record, audited financials and collateral. However, if these areas are properly addressed, SMEs can access financing more easily. Jordan is lucky to have support for SMEs in the form of loan guarantees and technical assistance in various programmes. Indeed, the Jordanian government has addressed SMEs in a number of laws and policies. It is also important to mention here that Arab Bank has a long-established, specialised SME department within our corporate and institutional banking division, which understands and caters to SMEs not just at a business level, but more strategically given the segment’s potential.

To address the gaps between banks and SMEs, several things can be done to help this segment be a driver for economic growth and employment. The Central Bank of Jordan took the initiative and provided incentives to commercial banks to lend to SMEs. Increasing the amount of data available to financial institutions on the SME segment would also pave the way for greater bank support.

On the banks’ side of the equation, more comprehensive product packages and services that cater to the SME segment’s requirements need to be fast-tracked. While SMEs currently receive less favourable interest pricing compared to larger, more well-established companies, the incentive programmes that have been put in place are helping.

Creating jobs is no small task. The responsibility lies with everybody, from the banks that provide the financing, to the regulators who set up the frameworks, and the SMEs that take initiative to operate efficiently and employ people. This could be a defining issue for Jordan, not just in the major cities. It is a balancing act, but with a concerted effort from all of the parties involved, the SME segment can grow and provide opportunities to the kingdom’s youth.


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The Report: Jordan 2012

Banking chapter from The Report: Jordan 2012

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