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Credit access in Jordan
Credit access in Jordan has improved dramatically over the past two years thanks in part to changes in the regulation of funds by the government and the creation of newer, better lending programs across the country.

This year, global indicator, Doing Business has given Jordan’s overall credit access performance a ranking of 159 out of 189 countries, which shows an increase from a dismal 2016 ranking of 185 out of 189 countries. The continued improvement of these numbers will hopefully help Jordan to start pulling itself out of its nine-year stagnation of economic growth.

Background of Credit Access in Jordan

Lack of credit access in Jordan affects all citizens, but especially small and medium-sized enterprises (SMEs). In 2016, SMEs accounted for an estimated 98 percent of all Jordanian business and affected 40 percent of the country’s GDP.

A 2011 survey by the European Bank for Reconstruction and Development (EBRD) reported that 70 percent of SMEs considered themselves ‘credit constrained’ and thus had to put plans of growing and improving their business on hold.

Before the recent creation of new lending systems, SMEs found themselves having to choose between going to one of the many banks in Jordan for a loan and utilizing non-profit microfinance institutions (MFIs). Each of these methods proved to have significant flaws that made accessing credit impractical, if not impossible.

On the one hand, banks found it difficult to work with SMEs as most of them did not have enough collateral to mitigate the risk of providing the smaller business with a loan. On the other hand, while MFIs can provide loans to SMEs without the necessity of collateral, a system of regulation for MFIs did not yet exist within the Jordanian government.

Without regulation, interest rates varied wildly between MFIs, with some of them even going beyond the legal standard. As no clear method of recording credit existed, clients reported receiving the wrong amount of funds.

Remedying the Situation

Providing businesses with alternative forms of funding seems like the best method of helping them cross over the current financial gap. The Jordanian government, as a 2016 Oxford Business Group article reports, has already begun to put forward “initiatives with banks and multilateral institutions to offer more credit to smaller businesses”. The creation of the first credit bureau in Jordan, for example, will hopefully provide a more regulated method of credit access in Jordan than MFIs.

SMEs can also look into more private funding programs. The peer-to-peer lending program liwwa, for example, allows any SME with “business operations that are managed ethically” to apply for loans and, if accepted, campaign to receive loans from an individual or institutional investors. The program also helps regulate these funds by offering such services as negotiating overdue loan repayments with borrowers and investigating the businesses of borrowers to assure qualification. While the program has only processed 305 loans so far, this number can hopefully grow in the future.

The Jordan Loan Guarantee Corporation also provides SMEs with a more accessible finance option by acting as a facilitator between borrowers and investors. Created by a collaboration of USAID with the Overseas Private Investment Corporation (OPIC), this program supports businesses that “(1) have a well-defined marketing opportunity to start-up or expand, (2) need financing to achieve their goal; but (3) lack the collateral banks usually require for making loans” by offering a ‘loan guarantee’ to possible investors (mostly banks in this case). A loan guarantee means that in the case of a borrower defaulting on their loan, a business like JLGC will pay the investor back a large percentage of their investment. So far, the program has issued over 214 loans guaranteed and allowed SMEs to access over $50 million in finances.

Further success in these programs will provide SMEs with the opportunity to expand and thus create more job opportunities for those currently struggling to find employment. Along with this, if credit access in Jordan continues to improve, financially constrained entrepreneurial individuals will have more opportunity to create their business ventures.

Both of the aforementioned benefits can allow even those in poverty to change their social status and become consumers. This, along with expanding businesses, will hopefully improve Jordan’s rate of economic growth.

 – Lyz Frerking
Photo: Flickr

Top 10 Poverty in Jordan Facts
Jordan is a country of key interest to the United States, situated as it is in the center of the conflict-ridden Middle East. This is principally why the United States has planned more than $1 billion in foreign aid to Jordan in 2018, focused on military assistance, economic development and health.

Much of this aid aims to address poverty in Jordan, a major cause of discontent given that more than 14 percent of the country currently lives below the poverty line. Understanding poverty in Jordan is key to addressing it, which in turn would help to secure a peaceful future for the country and the Middle East in general. This 10 poverty in Jordan facts break down the basic concept of the issue and the possible solutions to Jordan’s ails.

Top 10 Poverty in Jordan Facts

  1. Jordan Lacks Natural Resources
    While many Middle Eastern countries possess large oil reserves, to their great economic benefit, Jordan lacks this kind of natural wealth. The country also has a poor climate, which contributes significantly to its high rates of poverty.
  2. Jordan Is Not Poor
    However, poverty in Jordan is not just a matter of natural resources or a pervasive lack of wealth. The United Nations classified Jordan as a middle-income nation. Though it is by no means wealthy, it is also not in economic despair. Many of the problems in Jordan stem not from lack of money, but rather its distribution throughout the country.
  3. Economic Development Is Key
    Jordan has a low rate of economic participation among its citizens, accelerating the problem of poverty. Economic development in Jordan is poor, and has led to low wages and underwhelming career opportunities that discourage citizen participation in economic activity. This helps to explain why the United States dedicated part of its foreign aid to Jordan to economic development, as this is key to lowering poverty levels.
  4. There Is No Safety Net
    Another problem in Jordan is the lack of a social welfare program that delivers meaningful benefits to unfortunate citizens. This is related to low economic activity and serves to trap citizens in poverty because there is little assistance available to allow anyone to rebound. This only deepens low economic participation rates and poverty in the country.
  5. The Budget Is Tight
    Due to multiple external stressors and government mismanagement, Jordan faces a mounting fiscal deficit, with little money available to fight growing poverty levels and low participation rates in the economy.
  6. Debt Contributes to Inflation
    The growing national debt and economic stress have led to skyrocketing inflation rates in Jordan, which the country is unequipped to properly address. This devalues money quickly for struggling individuals and discourages savings and long-term investments. Adding to this problem is the fact that combating inflation risks raising unemployment, which could further cripple citizens looking to escape poverty.
  7. Poverty Has Not Always Been This Bad
    In the early 1980s, Jordan was a relatively wealthy country, with only 3 percent of the population living below the poverty line. It was only after an economic crisis in the 1980s that poverty became a prevalent issue. The crisis hit Jordan hard, and though the economy has resumed steady growth, much of the population still feels the lasting effects.
  8. The Syrian Refugee Crisis Has Taken a Toll
    The refugee crisis created by the brutal civil war in neighboring Syria has left Jordan reeling. Thousands of civilians have poured into the country in search of solace from the conflict, putting more economic strain on the country and adding thousands of people living below the poverty line.
  9. Many Live at the Margins
    Studies in Jordan have found that the majority of citizens living in poverty are either slightly below or above the poverty line. This indicates the fluctuations that surround poverty in Jordan, with many citizens constantly falling back beneath the poverty line after rising just above for a short time.
  10. Solutions Exist
    The problem of poverty in Jordan is vast and at times feels difficult to grasp and control, but solutions to the crisis are available. Further increasing foreign aid to the country to assist in economic development would help the nation cope, especially given its current refugee intake. So, too, would the development of joint programs with the United Nations to improve health conditions. Such aid is vital and could help Jordan evolve into a keystone of stability in a region known for political strife.

These 10 poverty in Jordan facts have outlined the basics of Jordan’s political and economic problems that have led to high rates of poverty and many of the solutions available. In order to secure a peaceful future for the Middle East, it is vital that the United States continues its investment in allied countries in the region and prevent further political instability.

– Shane Summers

Photo: Flickr

Causes of Poverty in Jordan

According to the World Bank, around 13 percent of the population in Jordan live in poverty. This means 13 percent of the population spend less than $2.60 U.S. a day. However, nearly a third of the population in Jordan live in what is known as transient poverty, which means that they live in poverty for a quarter of the year. Considering that even the types of poverty in Jordan are varied, the causes must also be complex and varied, depending on the household and the area of residence. Outlined below are just a few of the causes of poverty in Jordan.

Top Causes of Poverty in Jordan

  1. Education
    While Jordan has begun improving public education tremendously at the secondary level in past years, it still lags behind the prestige and high-priced private school system. Those in the higher-middle and upper classes are able to afford good education, while the middle and lower classes are not able to pay for such schooling. The result is an education gap between the middle and upper classes. Furthermore, while some families might be well off during the time of year that their children do not attend school, often times they slip into poverty in order to afford tuition once school begins again.
  2. Wage Gap
    Another one of the causes of poverty in Jordan is the stagnant income. Many middle class families struggle with the difference between their salary and cost of living. While salaries have largely remained the same in recent years, cost of living is steadily rising – particularly in larger cities like Amman. This, along with the above factor of education, have forced some members of the middle class into what would be considered poverty. Another result of stagnant wages has been a decrease in spending of not only the lower class, but the middle class as well. In fact, 51 percent of Jordanian families spend as though they were living in poverty.
  3. Ramadan
    Strangely – or perhaps not – the season of Ramadan weighs considerably on Jordanian residents’ pocketbooks. During the month of Ramadan this year, Jordanian citizens collectively spent about $493 million U.S. on food alone. Considering the substantial increase in spending, some middle class citizens dip into poverty after the month of festivities associated with Ramadan.

The stagnation of income and shortcomings of the public education system reveal only some of the causes of poverty in Jordan. In order to combat a majority of these issues, creating jobs with reasonable salaries seems to be a solution offered by experts. In turn, King Abdullah II has introduced Jordan Vision 2025. Jordan Vision 2025 is a blueprint for social and economic development. The King hopes that the project will bring jobs along with it, which would likely help bring people out of poverty.

Sydney Roeder

Photo: Pixabay