Providing SMEs with finance

Facilitating Finance

Jordan is intensifying efforts to provide support for startups and SMEs by easing access to financing.

Despite some continued obstacles to obtaining conventional bank finance, rising public and private investment in tech companies is contributing to a growing optimistic outlook in Jordan’s digital economy.

According to the 2011 census, roughly 98 percent of all companies in the Kingdom are micro-enterprises or SMEs, employing some 71 percent of the private sector laborforce. Moreover, SMEs account for upwards of 40 percent of Jordan’s total nominal GDP, making access to finance for this segment key to the country’s economic development.

However, in a survey on the business environment in Jordan and surrounding countries, the European Bank for Reconstruction and Development (EBRD) reported that more than 70 percent of SMEs in Jordan are credit-constrained, compared to 19.7 percent of large businesses. While in a 2012 EBRD survey 36 percent of SMEs in Jordan said lack of access to funding was a major obstacle to their operations. This is particularly true for startups with no credit history and limited collateral.

Work is underway to bridge the financing gap for SMEs, with the government pushing through initiatives alongside 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 $1.4 billion available to SME lending programs. 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.

Jordan’s public sector has also pivoted toward developing programs designed to expand the country’s role as a center for entrepreneurship and innovation.

Oasis500, the Kingdom’s flagship seed investment company, has been active in financing primarily tech startups 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 last August that seven tech startups 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.

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

While public support should provide acatalyst for growth, long-term viability will also depend on the amount of private investment the SME and startup sector can generate. Here too, however, there are some promising signs.

In late March, liwwa, the Amman-based peer-to-peer lending platform, received $2.3 million 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 startups 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.


This Jordan economic update was produced by Oxford Business Group.