Jordan Services Modernisation Programme a EU-funded programme implemented by Financial and insurance sectors in Jordan: the way forward National Conference

Jordan Services Modernisation Programme a EU-funded programme implemented by

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


A missing link?

Banking sector snapshot

Improving the financial ecosystem

JEDCO JSMP Access to Finance

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A well developed service sector

Financial Sector is THE interlinked service sector

Measure of financial developmentMonetary sector and monetary policyRegulation and supervisionBanking sectorNon bank financial sectorInstitutional environment

Contribution to the economy (2009)8.9% of GDP in 2009 24,000 employees (3% but qualified)18% of total merchant services Direct Export contribution to SerSec

Main players28 banks (4 Islamic / 10 foreign) – 600 branches - 26 insurance companiesBk Assets: JD33 bn – Premium: JD330 m – 165 listed companies: JD20 bn

=> Focus on interlinkage: ACCESS TO FINANCE

IMF Comprehensive Financial Development Index (CFDI) ranks Jordan second after Lebanon in the MENA region


But is a link missing?

• Ranked 127/183 for access to credit (Doing Bus. 2010)

• Contrasts with the WEF Financial Development index (25 / 55)

• Other indices are in preparation (OECD)

=> What impede the financial sector from doing better?

•

=> Despite its modest size, the FinSec is the blood of SerSec

Doing Business 2010 - Access to credit Jordan MENA OECDStrength of legal rights / 10 4 3.3 6.8Depth of credit information index / 6 2 3.3 4.9Public registry coverage / population 1 5 8.8Private bureaus coverage / population 0 10.9 59.6


A missing link?




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How performing is the banking sector ?

World Bank public database (2008) Jordan Avg. LMIC Turkey UK Singapore Egypt Tunisia LebanonBank deposits / GDP 1.08 0.52 0.39 1.53 1.13 0.76 0.51 n.a.Bank credits / bank deposits 0.85 0.68 0.78 1.25 0.85 0.51 1.11 0.32Bank overhead costs / Total assets 0.02 0.02 0.04 0.01 0.01 0.03 0.02 0.01Return on assets 0.03 0.03 0.05 0.01 0.01 0.03 0.04 0.02Return on equity 0.86 0.69 0.04 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


Is the service sector well served?

=> A support in line with importance of the SerSec

2005 2006 2007 2008 2009 In %

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%

Credit to Services In % of total 50% 50% 54% 55% 60%

% of GDP

CREDIT FACILITIES TO SERVICES SECTOR (JD million) @ Current Prices


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)

=> Resilient sector positioned for growth


A missing link?




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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


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


Improving the financial ecosystemFramework: Euro-Mediterranean Charter for Enterprise / JSMP FSSD

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)

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

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A missing link?




Going further


Banking Window ProgrammeProviding SME financial intermediation services

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).

The Banking Window offers three key services

Aimed at facilitating access to finance for services SMEs

The Banking Window offers three key services

Aimed at facilitating access to finance for services SMEs

In-house advisory and coaching

Production of credit report

External technical assistance

Introduction to JEDCO network of financial institutions (MOU)


Venture Capital ProgrammeDeveloping innovative financial instruments

Early Stage Fund:

10-15 Meuros - GoJ / EIB pre- committed 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

Cabinet decision: establish 2 Funds

Venture Capital and Developt

Co-sponsored by GoJ and the European Investment

Cabinet decision: establish 2 Funds

Venture Capital and Developt

Co-sponsored by GoJ and the European Investment

Championing a VC tax friendly environment in line with international competition

Selecting managers according to strict process

Assisting in structuring and fund raising


Follow-up of EUR6m fund

Need to ensure high impact

High leverage

Incentives for banks

Fast decision process

Why not burning the fund?

Extra-incentives

Services SME loan guaranteesStrengthening borrowers’ creditworthiness

JSMP LT loan guarantee facility.

60% default coverage<Euro75k

Delegation to banks (small dossiers)

Implementing body: JLGC (under discussion)

JSMP LT loan guarantee facility.

60% default coverage<Euro75k

Delegation to banks (small dossiers)

Implementing body: JLGC (under discussion)

Assessment of the situation in Jordan showing huge gap

Assistance to the development of the business plan

Study tour (Lebanon and France)

Technical documentation


Proves to be efficient (Turkey, Lebanon, Morocco)

Gathers stakeholders

Recommendations at all levels

Advisor for Gvt. and donors finance

Identify a hosting body for the initiative

SME Financing Advisory CommitteeProviding policy input

Stakeholder committee focusing on SME financing

Fed with practical surveys (sector needs, international practices, innovative instruments)

Issuing recommendations

Stakeholder committee focusing on SME financing

Fed with practical surveys (sector needs, international practices, innovative instruments)

Issuing recommendations

Concept note drafted and validated

Stakeholders mobilized

Preliminary list of feeding studies (e.g. Factoring)

Difficulties in finding proper hosting body


A missing link?




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

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Documents

Jordan Services Modernisation Programme a EU-funded programme implemented by Financial and insurance sectors in Jordan: the way forward National Conference