Financial and insurance
sectors in Jordan: the way
forward
National Conference
Harnessing Services for Sustainable
Development: Opportunities and Challenges for
Jordan
21 – 22 September 2010
Jordan Services Modernisation Programme a EU-funded programme implemented by
A missing link?
Banking sector snapshot
Improving the financial ecosystem
JEDCO JSMP Access to Finance
Going further
Jordan Services Modernisation Programme a EU-funded programme implemented by
A well developed service sector
Financial Sector is THE interlinked service sector
Measure of financial development
Monetary sector and monetary policy
Regulation and supervision
Banking sector
Non bank financial sector
Institutional environment
IMF Comprehensive
Financial Development
Index (CFDI) ranks
Jordan second after
Lebanon in the MENA
region
Contribution to the economy (2009)
8.9% of GDP in 2009
18% of total merchant services
24,000 employees (3% but qualified)
Direct Export contribution to SerSec
Main players
28 banks (4 Islamic / 10 foreign) – 600 branches - 26 insurance companies
Bk Assets: JD33 bn – Premium: JD330 m – 165 listed companies: JD20 bn
=> Focus on interlinkage: ACCESS TO FINANCE
Jordan Services Modernisation Programme a EU-funded programme implemented by
But is a link missing?
• Ranked 127/183 for access to credit (Doing Bus. 2010)
Doing Business 2010 - Access to credit
Strength of legal rights / 10
Depth of credit information index / 6
Public registry coverage / population
Private bureaus coverage / population
Jordan
4
2
1
0
MENA
3.3
3.3
5
10.9
OECD
6.8
4.9
8.8
59.6
• Contrasts with the WEF Financial Development index (25 / 55)
• Other indices are in preparation (OECD)
=> What impede the financial sector from doing better?
•
Jordan Services Modernisation Programme a EU-funded programme implemented by
A missing link?
Banking sector snapshot
Improving the financial ecosystem
JEDCO JSMP Access to Finance
Going further
Jordan Services Modernisation Programme a EU-funded programme implemented by
How performing is the banking sector ?
Jordan Avg. LMIC Turkey
Bank deposits / GDP
1.08
0.52
0.39
Bank credits / bank deposits
0.85
0.68
0.78
Bank overhead costs / Total assets
0.02
0.02
0.04
Return on assets
0.03
0.03
0.05
Return on equity
0.86
0.69
0.04
World Bank public database (2008)
UK Singapore Egypt Tunisia Lebanon
1.53
1.13 0.76 0.51 n.a.
1.25
0.85 0.51 1.11 0.32
0.01
0.01 0.03 0.02 0.01
0.01
0.01 0.03 0.04 0.02
0.72
1.00 0.55 0.53 0.76
• Bank deposits total 108% of the GDP vs. 52% of LMIC
• 85% of deposits transformed vs. an average of 68%
• Overheads in line with average LMIC but 25% higher that in HIC
• Returns on assets and equity are in line with best players
=> 1st rank of its tier / can compete internationally
Jordan Services Modernisation Programme a EU-funded programme implemented by
Is the service sector well served?
CREDIT FACILITIES TO SERVICES SECTOR (JD million) @ Current Prices
2005
2006
2007
2008
2009
In %
% of
GDP
General Trade
1,585
1,917
2,435
2,898
3,195
24%
11%
Construction
1,162
1,561
1,942
2,293
2,583
19%
17%
Transportation Services
220
291
352
371
453
3%
17%
Tourism, Hotels and Restaurants
181
195
256
367
428
3%
2%
Public Services and Utilities
554
637
734
870
910
7%
10%
Financial Services
176
242
390
438
434
3%
12%
Total service sector
3,878
4,843
6,109
7,236
8,003
60%
69%
Total
7,744
9,762
11,296
13,044
13,317
100%
50%
50%
54%
55%
60%
Credit to Services In % of total
=> A support in line with importance of the SerSec
Jordan Services Modernisation Programme a EU-funded programme implemented by
KFS: Strong regulator / prudent risk mgt
• 2004 / 2007: Handbook and Corporate Governance Guide
• Non Performing loans: from 17% in 2002 to 6% in FYE09
• Coverage ratio surged from 51% to 65%: better risk management
• Nov. 2008: reduction of CBJ rates; but liquidity still high (JD7.4bn)
PRIVATE CREDIT BY BANKS AND OTHER FINANCIAL INSTITUTIONS / GDP
2.5
2
1.5
1
0.5
0
=> Resilient sector positioned for growth
Jordan Services Modernisation Programme a EU-funded programme implemented by
A missing link?
Banking sector snapshot
Improving the financial ecosystem
JEDCO JSMP Access to Finance
Going further
Jordan Services Modernisation Programme a EU-funded programme implemented by
Is banking finance accessible enough?
• Focus on SME banking (real estate / stock exchange uncertainties)
• Major banks target to triple their SME activities
• 8 banks have created dedicated SME departments
• 4 banks advertised SME tailored products
• But SME lending still only represent 6 to 8% of total lending
• Particularly affects the service sector (lack of collateral, intangibility)
=> JEDCO / JSMP assesses the gap to be 250 to 400 MJD / year
Jordan Services Modernisation Programme a EU-funded programme implemented by
What about alternative financings?
• For start-up / early stage companies, 3Fs account for 72% (vs. 37%
in the US), banks 15%, micro-finance 9%, government 5%
• Guarantee schemes are still nascent and under utilised: 45 MJD, vs.
250 MJD needed
• Factoring services are quasi non-existent
• Capital development is mainly focusing on large companies
• Venture capital is under developed
• Business angel networks are too many and not coordinated
=> The breadth of financial sector need improvement
Jordan Services Modernisation Programme a EU-funded programme implemented by
Improving the financial ecosystem
Framework: Euro-Mediterranean Charter for Enterprise / JSMP FSSD
Policy
Develop SME financing friendly policies (e.g. Lebanon, Egypt, France, USA)
Create a dialogue platform between various SME financing stakeholders
Align the VC incentives with international standards (e.g. Dubai, Bahrain, Finland)
Supply / Infrastruc
demand
-ture
Develop framework for factoring activities (e.g., Tunisia, Lebanon)
Strengthen / upgrade the loan / credit guarantee institutions
Expedite creation of the credit bureaus (June 2010)
Develop a registry for movable collaterals
Developping financial intermediation services affordable to SMEs
Develop government backed /privately managed VC funds
Promote the creation of new loan guarantee funds
Jordan Services Modernisation Programme a EU-funded programme implemented by
A missing link?
Banking sector snapshot
Improving the financial ecosystem
JEDCO JSMP Access to Finance
Going further
Jordan Services Modernisation Programme a EU-funded programme implemented by
Banking Window Programme
Providing SME financial intermediation services
The Banking
Window offers
three key
services
Aimed at
facilitating
access to
finance for
services SMEs
Increasing company’s
readiness (systems)
Access to competitive bank
/ equity financing (financial
intermediation)
Better use of and access to
collateral / improvement of
financial terms(negotiation).
Jordan Services Modernisation Programme a EU-funded programme implemented by
 In-house
advisory and
coaching
 Production of
credit report
 External
technical
assistance
 Introduction to
JEDCO network of
financial
institutions (MOU)
Venture Capital Programme
Developing innovative financial instruments
Cabinet
decision:
establish 2
Funds
Venture Capital
and Developt
Co-sponsored
by GoJ and the
European
Investment
Early Stage Fund:
10-15 Meuros - GoJ / EIB precommitted 3 Meuros - 30% to
60% of min.
Capital for Growth Fund:
30 to 50 Meuros (min. 20) - GoJ /
EIB pre-committed 7 Meuros
35% of minimum size
Jordan Services Modernisation Programme a EU-funded programme implemented by
Championing a VC
tax friendly
environment in line
with international
competition
Selecting
managers
according to strict
process
Assisting in
structuring and
fund raising
Services SME loan guarantees
Strengthening borrowers’ creditworthiness
JSMP LT loan
guarantee facility.
 Follow-up of EUR6m fund
60% default
coverage<Euro75k
 Need to ensure high impact
 High leverage
 Incentives for banks
Delegation to
banks (small
dossiers)
Assessment of
the situation in
Jordan showing
huge gap
Assistance to the
development of
the business plan
 Fast decision process
 Why not burning the fund?
Implementing
body: JLGC (under
discussion)
 Extra-incentives
Jordan Services Modernisation Programme a EU-funded programme implemented by
Study tour
(Lebanon and
France)
Technical
documentation
SME Financing Advisory Committee
Providing policy input
 Proves to be efficient
(Turkey, Lebanon, Morocco)
Stakeholder
committee focusing
on SME financing
Gathers stakeholders
Fed with practical
surveys (sector
needs, international
practices, innovative
instruments)
Issuing
recommendations
Recommendations at all
levels
 Advisor for Gvt. and donors
finance
 Identify a hosting body for
the initiative
Jordan Services Modernisation Programme a EU-funded programme implemented by
Concept note
drafted and
validated
Stakeholders
mobilized
Preliminary list of
feeding studies
(e.g. Factoring)
Difficulties in
finding proper
hosting body
A missing link?
Banking sector snapshot
Improving the financial ecosystem
JEDCO JSMP Access to Finance
Going further
Jordan Services Modernisation Programme a EU-funded programme implemented by
Going further
• Capitalising on the strength of the financial sector
• Taking opportunities generated by the crisis and demand pool
• By taking daring financial initiatives focusing economics vs. financials
Demand
• Providing heavy assistance to improve creditworthy demand
• Developing extensive and aggressive guarantee / VC funds industries
Supply
• Keeping on increasing the breadth of the FS (innovation)
• Coordinating between Gvt. / FIs and private sector (SMEFAC)
• Additional Gvt. / donors finance to trigger large scale SME financing
THANK YOU
Jordan Services Modernisation Programme a EU-funded programme implemented by