Originally posted on the The Alliance for Financial Inclusion (AFI) website.
Since the early onset of the global pandemic, Central Bank of Jordan (CBJ) has adopted ongoing preventive and supportive measures aimed at containing the negative repercussions of COVID-19 on the local economy. Furthermore, the central bank has facilitated the use of digital channels in financial transactions to help limit the spread of infection caused by direct person-to-person contact.
In March, shortly after Jordan confirmed its first case of COVID-19, CBJ pumped JOD550 million (USD705 million) of liquidity into banks by reducing the compulsory reserve ratio on deposits for banks to five percent from seven percent. It also cut its benchmark interest rate by 150 basis points to drive down interest rates at banks.
Furthermore, CBJ asked banks to postpone the loan repayments of customers affected by the outbreak of COVID-19 emphasizing that the move should not be considered as loan restructuring and therefore should not negatively affect client credit scores. In addition, the Jordan Loan Guarantee Corporation (JLGC) reduced its program commissions and raised the percentage of insurance coverage for local sales guarantee program.
The following month, CBJ launched a JOD500 million Finance Facilitation Program for small and medium enterprises (SMEs) with the guarantee of JLGC, paving the way for SMEs to obtain much-needed funding to cope with the negative effects of COVID-19 and stem potential job losses.
With micro, small and medium enterprises (MSMEs) making up around 99 percent of registered companies in Jordan, the program was designed to be affordable. CBJ would lend to banks at a zero percent interest rate, while re-lending interest rates from banks to clients were capped at two percent annually with the Jordanian government bearing the cost of any loans granted to pay employee salaries. The program provides loans for up to 42 months and a grace period of up to a year. Loans are guaranteed by JLGC at 85 percent of their principal.
As of 11 June, the program has disbursed funds totaling JOD289 million – with an average loan size of JOD100,000 – 36 percent of which went to the wholesale and retail sector, 21 percent to the manufacturing sector and eight percent to the education sector. A portion of the loans disbursed from this program has covered 64,000 workers’ salaries.
Following the outbreak of the COVID-19, CBJ refinanced the fund to the amount of JD1.2 billion. Initiated in 2011 to enhance access to financing of adequate terms and costs by selected sectors, including industry, tourism, agriculture, renewable energy, information technology, transportation, health, technical and vocational education and engineering consulting the fund also covered salaries of 27,500 employees during the pandemic.
Through this fund, CBJ reduced the financing costs and increased the maturity and maximum value of existing and future advances. The program’s interest rates dropped to one from 1.75 percent on refinancing funds for projects inside the Amman Governorate, and to 0.5 percent from one percent for projects in other parts of the country.
Helping small and medium enterprises find buyers in new markets, and facilitating trade and economic cooperation, the Jordan Enterprise Development Corporation recently launched a program that contributes to the shipping costs of SME products accessing non-traditional markets. The program provides financial grants of JOD10,000 and covers up to 70 percent of total expenses on a competitive basis, while targeting export opportunities among industrial SMEs from different governorates.
The CBJ has also made key steps in facilitating the uptake of mobile wallets by using the country’s advanced information and communications technology infrastructure, such as payments and regulatory frameworks. It has enabled access to financial services through self-registration online and encouraged the use of quick response codes for both individuals and enterprises to reduce the risk of spreading COVID-19 through potentially contaminated cash. Moreover, the Government of Jordan has adopted mobile wallets to disbursement of aid and salary payment.
CBJ will continue to monitor the latest economic and financial developments in its role to maintain monetary and financial stability and facilitate access to finance for MSMEs.
By Waleed Samarah, Central Bank of Jordan, Speaker of our Global SME Finance Forum 2019, Amsterdam
Waleed Samarah is Inspector of Microfinance and Credit Bureau Supervision Department at the Central Bank of Jordan. He had a great deal of work and research experience in different fields of works such as Financial Inclusion, Microfinance, SMEs, Alternative Finance, Credit Information, Fintech, and Financial Consumer Protection (FCP). Currently he is working at the Central Bank of Jordan (CBJ) in the Microfinance and Credit bureau Supervision Department from 4 years ago till now. CBJ selected him to join the team who is responsible to set up the regulatory framework, onsite and offsite supervisory approach from scratch where both sectors were self-regulated before. For that, he had the opportunity to attend an intensive training inside and outside Jordan like Boulder Microfinance Training in Italy and join study tours for many countries including Germany, Japan, Tajikistan and Italy. And since 2018 he is a primary representative for CBJ in the SMEs Finance working group one of Alliance for Financial Inclusion.
And recently he finished his research about alternative finance including Crowdfunding in the Developing Economies and this allow him to have comprehensive view about the financial sector challenges and opportunities in the developing economies.