A national drive to boost support for Jordan’s small and medium-sized enterprises (SMEs) is gaining pace, spearheaded by increased access to finance and plans to garner a more business-friendly operating environment.
In June the World Bank and the Central Bank of Jordan (CBJ) announced the launch of a $99m project that will offer early-stage financial support to more than 200 start-ups across the country. The World Bank will invest $50m in the initiative, with the remaining $49m to be provided by the CBJ. Around $3.5m will also be made available as financial support for partner investors.
As part of the implementation process, an Innovative Start-ups and SMEs Fund will be set up to assist smaller-scale ventures. Designed to support entrepreneurs from the pre-investment stage through to product development, the fund will focus primarily on businesses based in the technology, media, telecoms, agri-business, pharmaceuticals, water and green energy segments. The Jordan Loan Guarantee Corporation (JLGC) has been tasked with creating a new company to manage the fund, which is expected to be registered by the end of the year.
The initiative aims to facilitate access to credit for SMEs, which has long been a significant challenge for the kingdom’s smaller-sized businesses.
The European Bank for Reconstruction and Development reported in 2015 that almost 70% of SMEs surveyed in Jordan could be categorised as credit constrained, compared to just 19.7% of large businesses. Its findings support the results of a 2013 World Bank Enterprise Survey in which almost half (48.7%) of small firms in Jordan identified access to finance as a major constraint, compared to 33.1% of medium-sized businesses and 18.7% of large companies.
According to Mohammed Al Jafari, director-general of the JLGC, smaller enterprises face several specific hurdles when trying to obtain credit from traditional lenders.
“Financing opportunities aren’t all the same for larger companies and start-ups,” Al Jafari told OBG. “Larger companies have better opportunities because they can provide information such as financials, while smaller businesses and start-ups usually don’t have any information or collateral to support a request for a loan.”
A lack of liquidity has implications for both smaller enterprises and the country’s wider economy. SMEs account for roughly 40% of Jordan’s total nominal GDP, with small businesses making up 98% of all operational companies in the kingdom. They also provide employment for around 71% of workers based in the private sector, according to OECD figures.
In addition to easing credit constraints, the government is also working on a regulatory initiative aimed at enhancing business conditions for smaller enterprises.
In late April the Jordan Enterprise Development Corporation and the OECD launched a $1.3m project to improve the business landscape for small operators. Titled “Supporting Jordan in Improving Policies of SMEs”, the initiative’s aims include developing more business-friendly policies for entrepreneurs and facilitating greater cooperation between public and private institutions.
In line with the project’s strategy, JD200m ($282.2m) of the funds have been set aside for licensed banks to distribute specifically to SMEs. This financial support will be backed up by competitive interest rates and supportive grace periods for repayment.
Reem Goussous, managing director of Endeavor Jordan, the local branch of the non-profit organisation that provides business support and assistance to Jordanian entrepreneurs, stressed the importance of introducing measures that address the unique needs of small businesses.
“Policy makers in Jordan must start paying specific attention to the fast growing segment of companies within the SME sector. Those are the companies that generate quality jobs, improve productivity, enhance competitive standing, and propel economic growth. Their needs differ from those of traditional businesses, including access to finance, and therefore should be afforded special attention in policy formulation because of their multiplier effect."
Meanwhile, additional recommendations have been made for improving the legal framework surrounding investment funds in a bid to bolster the financial, technical and logistical support available to SMEs.
According to local media, a study released by think-tank the Jordan Strategy Forum (JSF) in mid-May identified investment funds, such as venture capital and private equity funds, as the institutions best placed to support small enterprises. It also called for existing laws to be reformed to help boost lending. The JSF said the relationship between state institutions and investors in the private sector should be clarified to ensure that both sides are safeguarded when investing in SMEs.
Leasing and microfinance entities have also been highlighted as a potential source of funding for SMEs. However, Ahmad Amoudi, general manager of CRIF Jordan, the sole operational credit bureau in the country, believes structural change is needed if the potential benefits of these forms of finance are to be realised.
“Leasing and microfinance entities represent significant sources of finance for SMEs and the cost of borrowing from these sources is significantly higher than banks,” he told OBG. “The credit bureau will help graduate borrowers and introduce them to the formal banking sector for better borrowing terms.”
Concerns about Jordan’s regulatory environment have been reinforced of late by international indices showing mixed results.
While the kingdom’s overall ranking in the World Bank’s 2017 ease of doing business index edged up one place to 118 out of 190 markets surveyed, the country slipped in sub-categories requiring substantial collaboration between businesses and the government. In the starting a business category, Jordan fell eight places to 106. It also dropped 13 spots to 109 in the dealing with construction permits section.
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