Jordan 4th largest microfinance market in Arab world

JORDAN. The number of microfinance borrowers in Jordan increased by 39% annually from 51,000 to 144,000 between 2005 and 2008 according to a country report published late last year by Sanabel, the Microfinance Network of Arab Countries.

The report calculates that Jordan's active client base of 144,000 microfinance borrowers represents a current penetration rate of only 18% within the total population of potential clients.

Total micro-lending jumped from US$18 million to US$127 millio during the same period as well, resulting in a robust compound annual growth rate (CAGR) of 63%.

These metrics place Jordan as the 4th largest microfinance market in the Arab world.

The report alludes to the National Microfinance Strategy developed in 2005 by Ministry of Planning and International Cooperation (MOPIC) designed to provide poor households access to a wide range of financial services through a liberalized and market-oriented economy where the private sector is the implementor.

The report also states that regulatory environment restricts deposits to formally licensed financial institutions, limiting funding resources to non-regulated microfinance institutions or donor institutions that provide either direct loans or loan guarantees in partnership with local commercial banks.

The Sanabel report further notes that the local microfinance market has become increasingly commercialized in the past few years with debt financing becoming predominant.

Nine commercial banks, including branches of 4 multi-national banks, are active wholesale lenders to Microfinance Institutions (MFIs).

Microfinance refers to the provision of financial services to poor or low-income clients, including consumers and the self-employed who have no access to conventional financial services.

Although the Arab microfinance industry is quite young, it is one of the fastest growing sectors in comparison to its global peers.

Ziyad Akrouk, Citi Managing Director in Jordan, said: "Establishing a more supportive framework for the microfinance industry will allow this vital economic sector to reach many more people in need across the Kingdom.

By strengthening our partnerships with microfinance networks such as Sanabel and SEEP, Citi helps reposition microfinance closer to mainstream financial services and empower a large sector of the society that is currently unbankable."

This report and other country reports fall within the broad activities of the Citi Network Strengthening Program (Citi NSP).

Funded by the Citi Foundation and run in partnership with Sanabel and the program's global partner, the SEEP Network, the program aims at developing strategic, business and implementation plans which may include embracing new technologies, advocating for interest rate liberalization, establishment of ratings agencies and credit bureaus, creating local debt and equity ratings funds that raise domestic capital, and developing links between the commercial finance and microfinance sectors.

Ranya Abdel-Baki, Executive Director of Sanabel, said: "Microfinance is steadily growing in importance as a vital economic tool for starting and consolidating income-generating activities for micro entrepreneurs in Jordan.

"Through CNSP, we hope to raise awareness about the need for a deeper and more sustainable microfinance sector in Jordan and other Arab countries, especially the number of active microfinance clients remains quite low as compared to the industry's potential, and when considering that the majority of the MFIs in the region are not-for-profit NGOs with very few commercial banks directly active in the sector."

Over the past decade, the Citi Foundation has contributed more than US$70 million in funding to support 350 microfinance institutions, microfinance networks and microenterprise programs in 57 countries.

In addition, Citi Microfinance, a business unit, supports the microfinance sector through commercial activities that build scale, lower costs and introduce new products.

Citi Microfinance currently has business relationships with more than 70 MFIs in over 35 countries in Asia, Latin America, Africa, Eastern Europe and the Middle East, as well as global microfinance networks, specialized fund managers, and investors