Tourism Microlending: Market Research Findings and Conclusion

BUILDING ECONOMIC SUSTAINABILITY THROUGH TOURISM PROJECT

PT

Tourism Microlending:

Market Research Findings and Conclusion FINAL July 2019

Developed by

USAID Building Economic Sustainability through Tourism Project

BUILDING ECONOMIC SUSTAINABILITY THROUGH TOURISM PROJECT 2

BUILDING ECONOMIC SUSTAINABILITY THROUGH TOURISM PROJECT

WORKPLAN # 4.5.1.1.C (TOURISM MICROLENDING: MARKET RESEARCH FINDINGS AND CONCLUSION)

Contract No. AID-278-C-15-00010

This publication was produced by the USAID Building Economic Sustainability through Tourism Project, under the direction of Preston Motes, Chief of Party.


Table of Contents ACRONYMS .........................................................................................................................................................5

EXECUTIVE SUMMARY ......................................................................................................................................6

1. INTRODUCTION AND BACKGROUND ..........................................................................................................9

1.1 OVERVIEW OF JORDAN’S TOURISM SECTOR .........................................................................................9

1.1.1 Tourism Receipts and Contribution to GDP ..................................................................................................................... 9

1.1.2 Tourism Activities ...................................................................................................................................................................... 10

1.1.3 Employment in Tourism .......................................................................................................................................................... 10

1.1.4 Tourism Outstanding Credit Facilities .............................................................................................................................. 10

1.1.5 Travel and Tourism Competitiveness ............................................................................................................................... 11

2. RESEARCH OBJECTIVES AND METHODOLOGY .................................................................................... 12

2.1 RESEARCH OBJECTIVES ......................................................................................................................... 12

2.2 RESEARCH METHODOLOGY ................................................................................................................... 12

2.2.1 Desk Research ........................................................................................................................................................................... 12

2.2.2 Key Informant Interviews ....................................................................................................................................................... 13

2.2.3 Focus Group Discussions ...................................................................................................................................................... 13

2.3 RESEARCH LIMITATION ........................................................................................................................... 13

3. MICROFINANCE IN JORDAN: ORGANIZATION, HISTORY, SIZE, AND PERFORMANCE .................... 14

3.1 OVERVIEW OF MICRO LENDING IN JORDAN ......................................................................................... 14

3.1.1 Tanmeyah..................................................................................................................................................................................... 14

3.1.2 History of Microfinance in Jordan ....................................................................................................................................... 14

3.1.3 Members of Tanmeyah ........................................................................................................................................................... 14

3.1.4 Performance Indicators and Achievements ................................................................................................................... 15

3.1.5 Microfinance Product Segmentation ................................................................................................................................. 16

3.2 ANALYSIS OF THE SUPPLY SIDE - MFIS ................................................................................................ 17

3.2.1 MFI Operations, Loan Guarantees and Credit Policies ............................................................................................ 17

3.2.2 Legislative Framework for MFIs .......................................................................................................................................... 18

3.2.3 Financial/Non-Financial Products Development .......................................................................................................... 18

3.2.4 Obstacles Faced by MFIs to Extend More Loans to the Tourism Sector .......................................................... 19

3.2.5 MFIs’ Contribution to the Development of Tourism Micro Enterprises ............................................................... 19

3.2.6 Loan Interest Rates and Penalties on Due Payments............................................................................................... 20

3.2.7 Loan Amount, Tenor, and Grace Period ......................................................................................................................... 20

3.3 ANALYSIS OF THE DEMAND SIDE…TOURISM ENTERPRISES ............................................................ 20

3.3.1 Jerash ............................................................................................................................................................................................ 21

3.3.2 As-Salt ........................................................................................................................................................................................... 22

3.3.3 Amman .......................................................................................................................................................................................... 24

3.3.4 Ajloun.............................................................................................................................................................................................. 25


4. CREDIT GAP…CAUSES AND EFFECTS ................................................................................................... 27

4.1 SUPPLY-SIDE RELATED FACTORS ......................................................................................................... 27

4.1.1 High Interest Rates on Loans .............................................................................................................................................. 27

4.1.2 Collateral and Guarantees .................................................................................................................................................... 28

4.1.3 Grace Period ............................................................................................................................................................................... 28

4.1.4 Loan Installments ...................................................................................................................................................................... 28

4.1.5 Financial Products .................................................................................................................................................................... 28

4.1.6 Internal Procedures .................................................................................................................................................................. 28

4.2 DEMAND-SIDE RELATED FACTORS........................................................................................................ 28

4.2.1 Seasonal Challenges ............................................................................................................................................................... 28

4.2.2 Lack of Knowledge ................................................................................................................................................................... 28

4.2.3 Technical Skills .......................................................................................................................................................................... 29

4.3 THIRD-PARTY RELATED FACTORS......................................................................................................... 29

4.3.1 Definition of Tourism Micro Activities ................................................................................................................................ 29

4.3.2 Non-Financial Information ..................................................................................................................................................... 29

4.3.3 Financial Indicators .................................................................................................................................................................. 29

4.3.4 Loans Guarantees .................................................................................................................................................................... 29

4.3.5 Coordination and Joint Efforts ............................................................................................................................................. 29

5. RECOMMENDATIONS TO BRIDGE THE GAP ........................................................................................... 29

ANNEXES ......................................................................................................................................................... 32


ACRONYMS

BEST Building Economic Sustainability through Tourism Project

CBJ The Central Bank of Jordan

FGD

GDP

Focus Group Discussion

Gross Domestic Product

HO Head Office

ICT Information & Communication Technologies

JHPA Jordan Handicraft Producers Association

JLGC Jordan Loan Guarantee Corporation

JOHUD The Jordanian Hashemite Fund for Human Development

MENA Middle East & North Africa

MFIs Microfinance Institutions

MoTA Ministry of Tourism and Antiquities

SDC Salt Development Corporation

SMEs Small and Medium Enterprises

UAE United Arab Emirates

UNRWA United Nations Relief and Works Agency

USAID United States Agency for International Development

WTTC The World Travel & Tourism Council’s


EXECUTIVE SUMMARY

Tourism micro enterprises and activities are widespread throughout the Kingdom. To encourage

tourism growth, it is crucial to bridge the funding gap for such enterprises in a sustainable manner

and increase opportunities for them to obtain finance. This is needed to promote economic

development and distribute its gains to different segments, locations and sites across Jordan,

especially governorates beset by poverty pockets, low-income earners and high unemployment.

Borrowing money at reasonable costs with “easy-to-obtain” guarantee and/or collateral would

enable tourism micro businesses to maintain and grow their operations and increase their

competitive advantage by supplying new products and services with competitive prices. This would

in turn attract more tourists and local clients. On the other hand, mitigating difficulties faced by

tourism micro business owners in securing loans is essential to the recovery of other economic

sectors, as tourism demand for products and services provided by other sectors will increase. This

includes demand for fixed assets, raw materials and many other consumable goods and services.

Joint efforts and cooperation between government agencies, the private sector, microfinance

institutions (MFIs) and community-based organizations can play a vital role in addressing the

challenges faced by businesses. Greater attention must be paid to the needs of all micro

enterprises, including tourism ones. They must be provided with various types of support to develop

and sustain their business growth. In this context, the following questions arise:

• What are the financing needs of tourism micro start-ups to establish and/or expand their business?

• What are the major challenges faced by tourism businesses in securing loans from the local credit market?

• What kind of support is needed by tourism enterprises to establish and/or expand their business?

• Do tourism entrepreneurs have sufficient information on MFIs’ requirements and conditions to obtain start-up financing?

• Are there any credit gaps facing tourism micro enterprises and, if so, how can the gaps be

mitigated?

To answer and shed more light on the above questions, a rapid market research assessment was

conducted as part of this study. This entailed conducting interviews with key microfinance players,

as well as conducting Focus Group Discussions (FGDs) at selected governorates (Ajloun, As-Salt,

Amman and Jarash). Findings are summarized as follows:

Financing needs of tourism business owners to establish and/or expand their business

The study revealed that owners of tourism micro enterprises seek financing for several reasons.

These include the purchase of fixed assets (machinery, equipment, home appliances, tools and

furniture), establishing a new business, acquiring workshops/outlets, renovation, securing raw

materials, covering operating expenses (wages, rent, license fees, etc.) and covering

marketing/promotional expenses.

Obstacles encountered by tourism enterprises in obtaining loans

Most participants confirmed that their inability to provide adequate guarantees and/or collaterals to

MFIs, in addition to higher interest rates charged on needed loans, are two of the most significant

obstacles they face when applying for loans (whether to establish or expand their business).


Areas of technical support needed by tourism businesses

The main areas of technical support needed by tourism businesses, to either establish their new

ventures or expand their existing businesses across all governorates were “marketing” (specially

through its digital form) and “customer service” as the most critical, while “preparing basic feasibility

studies”, “business development”/”business planning” and “pricing” were stated by most.

Awareness of terms and conditions to apply for loans

Majority of attendees, especially those located outside Amman, don’t have enough information on

MFIs’ terms and requirements to apply for loans. Such requirements include guarantees/collaterals,

historical financial records of borrowers, bank statements, bookkeeping, preparation of basic

feasibility studies and cash flow statements (for new projects).

Factors contributing to apparent credit gaps faced by tourism micro enterprises

The study identified critical factors contributing to current funding gaps. These are categorized into

supply side, demand side and third-party related factors as follows:

1. Supply-side related factors: Rigorous guarantees and/or collaterals required by MFIs, higher

interest rates, absence of a grace period, high installment amounts (as a result of short

repayment period), the lack of a focused tourism microlending product, and length and

complexity of procedures to obtain finance from MFIs.

2. Demand-side related factors: Seasonality of the sector, volatility of cash flow and income

generated during the year, ignorance of MFIs’ terms and conditions for accessing finance and

lack of basic skills in managing the business successfully (technical and financial).

3. Third-party related factors: Shortage of diversified loan guarantee programs (Jordan Loan

Guarantee Corporation-JLGC is currently the sole provider) or one that caters for MFIs’ specific

needs and challenges, lack of a standard definition for a micro tourism activity, unavailability of

segmented financial and non-financial information on tourism micro enterprises, poor

coordination amongst government agencies and weak private sector and community-based

bodies’ support to marketing activities, especially outside Amman.

Nevertheless, conducted “rapid” market research assessment had also revealed that not all tourism

activities of the same nature experience the same difficulties in managing their business, and that

geography plays a role. A handicraft entity in Ajloun, for example, could face cash flow issues in

January that the same business in Amman would not. Furthermore, a particular activity may suffer

from a financing gap in governorates such as Ajloun and Jerash, while others in As-Salt may not.

The above could be attributed to the following:

▪ Tourism businesses, as observed in Ajloun and Jerash, don’t have the required skills and will to

diversify their products during the year to overcome seasonal demand fluctuations, while they do

in Amman and As-Salt – culture/attitudes.

▪ Time spent by visitors/tourists in Ajloun and Jerash is usually short (mostly an hour), especially

in winter where the number of tourists decrease sharply due to cold weather. This reduces the

demand for tourist products and services – climate/seasonality.

At the end of the report, some recommendations are proposed to highlight lost opportunities in the

local micro-credit market, which could be exploited/seized by willing MFIs should they choose to

tackle identified obstacles faced by tourism micro enterprises in obtaining needed loans. The most

important are the following, as depicted by below diagram:

▪ Developing a flexible tourism micro lending product with explicit features, taking into

consideration the nature and specifics of tourism businesses.


▪ Exploring the possibility of signing an agreement with JLGC, considering their current mandate

and scope, and focusing primarily on products of higher ticket size.

▪ Offering specialized needed training for tourism businesses.

▪ Beef-up intended product’s value proposition through 3rd party alliances such as forging a cost-

effective suppliers’ network, market linkages (bazars/wholesale distributors/retailers) and

explore the viability of developing and launching an online portal/e-commerce platform for

tourism borrowers or linking to an existing one.

▪ Fulfil needed segmentation and reporting requirements to assist in gauging necessary

monitoring and evaluation mandates.


1. INTRODUCTION AND BACKGROUND

The “Tourism Microlending: Market Research Findings and Conclusion” is a study conducted by

Building Economic Sustainability through Tourism (BEST) project funded by the United States

Agency for International Development (USAID).

The study aims to support BEST’s efforts to diversify available lending options for tourism borrowers

and introduce a tourism-focused microfinance start-up lending program. The intended output is the

development and introduction of financial and non-financial services that target tourism micro

businesses.

This report provides conclusions and recommendations on ways to expand micro lending to tourism

projects/activities leading to improved and diversified tourism products and experiences. It describes

the conducted desk research and key informant interviews and focus groups and includes findings

regarding the status of tourism micro lending in Jordan.

1.1 OVERVIEW OF JORDAN’S TOURISM SECTOR

Micro enterprises play a significant role in the development of many countries, as numerous

successful large-scale projects that exist today were originally developed by individuals based on

creative ideas. Therefore, supporting these enterprises and providing them with the financial and

non-financial services needed for their success would encourage other individuals and investors

who have a sense of creativity and innovation to establish and expand their businesses. In the long

run, this will have a positive effect on the economy and local communities as a whole.

Tourism micro businesses in Jordan have proven their ability, efficiency and success in dealing with

some of the main challenges facing Jordan’s labor force due to their resilience, self-employment

advocacy and lower capital utilization compared to large-scale projects. They also provide a

platform for the development of managerial, technical, production and marketing skills and open a

wide range of initiatives for the establishment of micro start-up businesses. This reduces pressure

on the public sector to provide employment opportunities for new entrants to the labor market.

This section provides an overview of the performance and development of the tourism sector during

the past years and sheds light on the reality of tourism performance in Jordan, including tourism

receipts, tourism contribution to overall gross domestic product (GDP), number of tourism

enterprises, tourism share of employment and credit facilities granted to the sector by licensed

banks operating in Jordan, and travel and tourism competitiveness indices.

1.1.1 Tourism Receipts and Contribution to GDP

As highlighted in Table 1 below, the sector’s key performance indicators have shown a marked

upturn since 2017, as follows:

➢ In 2017, tourism contributed 11.6% to GDP, a marked increase over 10.5% in 2016.

➢ Tourism receipts reached JD 3.73 billion in 2018 – up 13.2% from 2017.

➢ Overnight visitors have been increasing steadily since 2017, reaching 4.15 million in 2018 – an

increase of 16.3% over 2016.

➢ 13.4% of overnight visitors were on package tours in 2018 – 69.2% growth over 2016.

Table (1) Tourism Sector Key Performance Indicators, 2016- 2018

2016 2017 2018

Tourism receipts – JD million 2,870.8 3,293.4 3,727.0

GDP – JD million 27,444.8 28,448.5 N/A


2016 2017 2018

Tourism receipts/GDP 10.5% 11.6% N/A

Number of total visitors – thousand 4,236 4,566 4,922

out of which overnight visitors – thousand 3,567 3,844 4,150

out of which on packaged tours/groups – thousand 328 467 555

Sources: Ministry of Tourism and Antiquities, Central Bank of Jordan

Update: Tourism key performance indicators continued an upward trend as evidenced by the first half of 2019; tourism receipts grew by 8.3% over the same period in 2018 (JD 1,855 million vs. JD 1,713), overnight visitors increased by 5.2% (2,031,268 vs. 1,930,054) and packaged tours tourists increased by 36.8% (365,139 vs. 266,886).

1.1.2 Tourism Activities

Tourism-registered businesses reached 3,059 by end of 2018. These enterprises include the

following sub-sectors: 588 hotels, 991 restaurants, 905 travel agencies, 315 tourist shops, 252 car

rental offices and 8 tourist transportation companies.

Table (2) Number of Tourism Registered Enterprises in Jordan

2016 2017 2018

Number of enterprises 3,143 3,075 3,059

Source: Ministry of Tourism and Antiquities

1.1.3 Employment in Tourism

Based on Table 3 below, the number of employees in the tourism sector continues to rise; from

48,600 employees in 2014 to 51,500 in 2018. This indicates that the tourism sector has great

potential to play a pivotal role in alleviating unemployment in Jordan, as the sector alone

experienced a positive net change of 2,400 employees during the last three years.

Table (3) Employment in the Tourism Sector

2014 2015 2016 2017 2018

# of Employees in Tourism Sector 48,600 49,100 50,400 51,300 51,500

Source: Ministry of Tourism and Antiquities

1.1.4 Tourism Outstanding Credit Facilities

Table 4 shows that the volume of total outstanding credit facilities for all economic sectors in Jordan

rose from JD 24,736.8 million in 2017 to JD 26,108.1 million in 2018 (a JD 1,371.3 million increase).

It also presents the share of each economic sector.

Table (4) Licensed Banks' Outstanding Credit Facilities According to Economic Activity

2017 2018

Change (in JD

million)

Growth

(%)

Credit

facilities (in JD million)

Share

(%)

Credit


Share

(%)

Tourism, hotels, and restaurants 619.7 2.5% 592.1 2.3% (27.6) (4.5%)

Agriculture 337.3 1.4% 336.7 1.3% (0.6) (0.2%)

Mining 255.2 1.0% 355.7 1.4% 100.5 39.4%

Industry 2,724.2 11.0% 3,064.2 11.7% 340.0 12.5%

General trade 4,230.9 17.1% 4,469.9 17.1% 239.0 5.6%


2017 2018

Change (in JD

million)

Growth

(%)

Credit


Share

(%)

Credit


Share

(%)

Construction 6,601.0 26.7% 6,830.4 26.2% 229.4 3.5%

Transportation services 354.3 1.4% 328.8 1.3% (25.5) (7.2%)

Public services and utility 3,707.2 15.0% 3,852.9 14.8% 145.7 3.9%

Financial services 632.5 2.6% 768.2 2.9% 135.7 21.5%

Other 5,274.5 21.3% 5,509.2 21.1% 234.7 4.4%

Total credit 24,736.8 100.0% 26,108.1 100.0% 1,371.3 5.5%

Source: Central Bank of Jordan

Other readings into the above table include:

▪ Total outstanding credit facilities extended to tourism, hotels and restaurants declined from JD

619.7 million in 2017 to JD 592.1 million in 2018, a decrease of JD 27.1 million. This indicates

that new facilities granted to the sector were not on a par with the sector’s own repayments. The

same can be said about the agriculture and transportation services sectors.

Update: At the end of April 2019, total outstanding credit facilities for tourism activities reached JD 635.8

million: an increase of JD 43.7 million, which surpassed that of December 2017.

▪ The 2018 JD 1,371.3 million increase in total outstanding credit facilities is primarily attributed to

industry, general trade, and construction. Their total outstanding credit facilities reached JD

808.4 million, representing 59% of the total increase in outstanding credit facilities. Excluding

retail lending, which is the bulk of “other”, it seems that most of the other economic sectors,

including tourism, had limited access to finance from the local credit market.

▪ Tourism’s share of total outstanding credit facilities dropped by 0.2% in 2018 compared to 2017.

A decrease was experienced by most other economic sectors, except for mining, industry, and

financial services.

Update: By end of April 2019 there was a slight increase in tourism’s share of total outstanding credit

facilities: from 2.3% to 2.4%

1.1.5 Travel and Tourism Competitiveness

In terms of tourism competitiveness, according to the World Travel & Tourism Council’s (WTTC)

2017 Travel & Tourism Competitiveness report, and as shown by Table 5 below, Jordan was ranked

75th (out of 136 economies). This is a steady improvement (up two places) given the regional

context. Its Information & Communication Technologies (ICT) readiness (44th, up 21 places) along

with maintaining a high level of security (38th globally) and high government prioritization (22nd),

including the 6th highest relative spending, reinforced the country’s stable performance.

Jordan was less competitive than the United Arab Emirates (UAE), the clear regional leader at 29

(out of 136 economies). Other regional rankings were Qatar (47), Bahrain (60), Israel (61), Saudi

Arabia (63), Morocco (65), Oman (66) and Egypt (74). Regional destinations that are less

competitive than Jordan are Tunisia, Iran, Lebanon, Kuwait, Algeria and Yemen.


Table (5) WTTC Travel and Tourism Competitiveness Index

2015 2017

Jordan’s regional rank; Middle East & North Africa (MENA) 8 9

# of MENA countries included in the report 16 15

Jordan’s global rank 77 75

# of countries included in the report 141 136

Source: WTTC Competitiveness Reports 2015, 2017

2. RESEARCH OBJECTIVES AND METHODOLOGY

2.1 RESEARCH OBJECTIVES

The objective of this assignment is to conduct a rapid access-to-finance demand-side market

research and customer needs assessment for tourism micro start-ups using a qualitative approach.

The purpose is to diversify available lending options for targeted borrowers and introduce a tourism-

focused microfinance start-up lending program. The assignment aims to achieve the following:

1. Identify the financing needs of tourism micro start-up businesses to establish or expand their

ventures.

2. Highlight the main obstacles and challenges encountered by tourism micro start-ups to obtain

finance from financial institutions, specifically MFIs.

3. Identify areas of technical support needed by tourism micro enterprises to establish or expand

their business.

4. Gauge knowledge of tourism micro enterprises about MFI requirements and conditions to grant

the funding needed to establish or develop their business.

5. Identify credit gaps (if any) in the Jordanian micro credit market.

6. Suggest reasonable recommendations to mitigate identified credit gaps, which in essence

represent opportunities for MFIs.

2.2 RESEARCH METHODOLOGY

A qualitative approach was used in this research. This included:

➢ Desktop research, review, and analysis of primary and secondary data and information

➢ Meetings with five key MFIs

➢ Four FGDs with participants representing target segments

2.2.1 Desk Research

Relevant published studies, reports and data were compiled, reviewed, and analyzed from reliable

online sources and government agencies to complete the necessary desk review. Sources of the

latest reports were the Central Bank of Jordan (CBJ), Ministry of Tourism and Antiquities (MoTA),

Department of Statistics, MFIs, World Economic Forum, and Tanmeyah; Jordan’s Microfinance

Network. A list of reviewed reports and documents is included in Annex A.

The desk research was conducted to provide an overview of the microfinance industry in Jordan

including: organization, history, market size of micro lending, distribution of loan portfolio granted by

MFIs and achievements of MFIs during the last two years.


2.2.2 Key Informant Interviews

To understand the supply side of the microfinance ecosystem in Jordan, five interviews (face to

face) were conducted between December 2018 and January 2019 with senior MFI teams. Interview

lasted for about an hour and a half. Pre-set guiding questions were prepared to cover the following

main interview topics: the amount of micro lending granted to tourism micro enterprises,

governorates with high demand for tourism micro lending, legislative framework governing MFI

lending and their contribution to the development and growth of tourism businesses. Respective

guiding questions are listed in Annex B.

Four MFIs were identified based on their leadership and considerable market share in the local

micro credit market, while the fifth one was selected to assess the demand for Islamic micro finance

(Ethmar for Islamic Finance). Below is a list of interviewed MFIs:

1. Microfund for Women

2. National Microfinance Bank

3. Jordan Micro Credit Company “Tamweelcom”

4. VITAS JORDAN

5. Ethmar for Islamic Finance

2.2.3 Focus Group Discussions

In February 2019, FGDs were held with tourism businesses in each of the four sample governorates

(Jerash, As-Salt, Amman and Ajloun) which were randomly selected based on their existing tourism

microlending size. Two were chosen due to their significant tourism lending market share (Amman

and Ajloun) and the remaining two were chosen due to their “below expectation” microlending size

despite their considerable wealth of tourism assets/products and experiences. Documented and

recorded audio sessions were reviewed, summarized and analyzed to complete the access to

finance demand side market research. Pre-set guiding questions (Annex C) were employed to

identify the following:

➢ Financing needs of tourism micro start-ups to establish new projects and/or expand existing

ones

➢ Challenges facing tourism micro businesses to access finance

➢ Technical assistance needed by tourism micro businesses to establish new projects and/or

expand existing ones

➢ Information and tools needed by tourism micro enterprises to ensure understanding of MFIs’

terms and requirements to obtain start-up lending

➢ Credit gaps in the Jordanian micro credit market

➢ Suggestions to improve the ability to access finance

Participants, who mostly had experience in dealing with financial institutions, were invited to join the

sessions, in addition to others who were interested in accessing micro lending. Participants were

identified in collaboration with several USAID BEST partners, including Salt Development

Corporation (SDC), the Jordanian Hashemite Fund for Human Development (JOHUD) and Jordan

Handicraft Producers Association (JHPA).

2.3 RESEARCH LIMITATION

Several challenges were faced during the course of this research, mainly related to the availability of

detailed, segmented and adequate data from official and reliable sources concerning the number,

market size and loans granted to tourism micro enterprises in general, including start-ups, not to


mention the known fact that most tourism activities under scrutiny in this study operate on an

informal basis - in other words, are not registered.

To mitigate these challenges, the five selected MFIs were interviewed, partly, to collect data of loans

granted to tourism micro enterprises (where possible), in an attempt to size tourism microlending.

Below sections provide findings of conducted research.

3. MICROFINANCE IN JORDAN: ORGANIZATION, HISTORY, SIZE, AND PERFORMANCE

3.1 OVERVIEW OF MICRO LENDING IN JORDAN

This section describes the micro credit market in Jordan. Furthermore, it presents information on the

history of micro lending, loan portfolios granted by MFIs, micro lending by sub-sector/activity and

achievements of MFIs in Jordan over the past two years.

3.1.1 Tanmeyah

Tanmeyah was established in 2007 and officially registered as a non-profit organization at the

Ministry of Industry and Trade to replace the Microfinance Association of Jordan as the official

representative of MFIs in Jordan.

Tanmeyah aims to support and develop a sustainable microfinance industry, as an integral part of

the formal financial system in Jordan, by building awareness of the importance of microfinance on

behalf of registered MFIs and help provide the appropriate regulatory environment and reference

data for the microfinance industry in Jordan.

3.1.2 History of Microfinance in Jordan

According to reports issued by Tanmeyah, the microfinance sector was founded in Jordan in 1994

by launching a pilot loan plan in Amman. Today, Jordan’s microfinance sector consists of nine MFIs

that employ best practices through 197 branches scattered across the Kingdom. These rely on their

own sustainability programs; they do not depend on external aids or grants to continue operating

within the micro finance domain.

Initially, the microfinance sector focused on group loans and business support. After its

development, it has expanded its services to include individual loans and other non-financial

products such as life insurance and business development services that focus on productive

families and low-income earners.

Microfinance has proved that it is a powerful and effective tool in empowering micro projects and

enterprises in Jordan, increasing household income and contributing to Jordan’s social and

economic growth.

It is worth mentioning that MFIs assign a greater priority to rural areas and poverty pockets inside

and outside Amman. They seek to expand development in various regions of the Kingdom by

providing better services to target segments including individuals, low-income earners and small

and medium enterprises (SMEs). The latest statistics issued by Tanmeyah indicate that more than

69% of total microfinance transactions, active customers, loan portfolios and branches, are located

outside Amman.

3.1.3 Members of Tanmeyah

1. VITAS JORDAN

2. Microfund for Women

3. Jordan Micro Credit Company (Tamweelcom)


4. National Microfinance Bank (Al Watani)

5. Ahli Micro Finance Company

6. FINCA Jordan

7. United Nations Relief and Works Agency (UNRWA) Microfinance Department

8. Ethmar for Islamic Finance

9. Al-Ameen for Microfinance

3.1.4 Performance Indicators and Achievements

The data in Table 6 below, which is a summary of key indicators and achievements of Jordan’s

MFIs, clearly shows that in 2018 there was a significant improvement in all performance indicators

compared with 2017.

Table (6) MFIs Performance

2017 2018 Growth Amman

2018

Active borrowers 438,300 465,700 6% 145,500

Active loans 434,200 451,800 4% 142,600

Outstanding loan portfolio – JD million 238.7 259.0 9% 97.1

Average outstanding loan size – JD 550 573 4% N/A

Women borrowers 77% 73% (4%) N/A

Number of branches 190 197 4% 63

Portfolio at risk (>30) 1.40% 1.70% 0.30% N/A

Written off (%) 0.67% 0.54% (0.13%) N/A

Source: Tanmeyah, 2018 Q4 Report

There is a remarkable and impressive increase in the loan portfolio and credit facilities granted by

MFIs to all sectors and economic activities. The total loan portfolio amounted to JD 259 million in

2018 compared with JD 238.7 million in 2017, a growth of JD 20.3 million (9%). The ratio of the loan

portfolio at risk is considered low and acceptable, representing only (1.7%) of the total loan portfolio.

The ratio of bad loans is very small and negligible. This is an indication of high competence of MFIs

in managing and investing their financial resources efficiently, hence, matching profitable products

to right customer segments, or that MFIs are adopting conservative internal credit policies in

granting loans to perceived high-risk sectors and activities.

It is worth mentioning that 88.3% of total businesses in Jordan are micro enterprises (1-4

employees), and 25.9% of the labor force/employees are in micro enterprises. However,

outstanding loan portfolio of MFIs constituted approximately 1% of total outstanding credit facilities

granted to all economic sectors by licensed financial institutions operating in Jordan (banks and

MFIs). This modest percentage is due to the nature and size of the activities/projects financed by

MFIs, which can be attested from the small average outstanding loan size of only JD 573 in 2018.

The number of active borrowers reached 465,717 in 2018 compared to 438,279 in 2017. This is a

growth of 27,438 (6%). The number of active loans grew by only 4% in 2018 to reach 451,844,

versus 434,175 loans in 2017.

MFIs carried out their business through a large network of 197 branches and points of sale

distributed across all regions and governorates of the Kingdom. Accordingly, the index of population


to total number of branches was around 54 thousand citizens per branch in 2018. Compared to

banks operating in Jordan, the index was about 12.5 thousand citizens per branch.

The capital, Amman, had only a 31% share of total active borrowers, a 32% share of total active

loans, a 37% share of the loan portfolio and a 32% share of total branches.

Moreover, in 2018, women accounted for 73% of the total number of MFI borrowers. This ratio

reaffirms the important role MFIs are playing in encouraging self-employment amongst women by

establishing their own business, hence, improving their unemployment rate, expanding their

participation in the labor market and enabling them to play an active role in the local community.

3.1.5 Microfinance Product Segmentation

MFIs offer a full range of financial products and services that meet the financial needs of their target

segments, and such products target several business activities within the following categories:

industrial, commercial, services, agricultural, educational, home maintenance, health insurance,

professional, consumer, and Islamic rituals.

Table (7) Microfinance Product Segmentation

Type of loan Market share

1. Commercial 45%

2. Home maintenance 19%

3. Consumer 18%

4. Services 10%

5. Industrial 3%

6. Agriculture 2%

7. Educational 1%

8. Health care 0.5%

9. Islamic rituals 0.5%

10. Vocational 1%

Source: Tanmeyah, 2018 Q4 Report

The table above indicates that the commercial sector had the largest share of total loans at 45%,

followed by home maintenance with 19%, and consumer loans at 18%. Details are in Annex D.

Table 7 includes a wide range of segments, but tourism is not separated into a segment in itself.

This level of segmentation does not reveal much about the loans granted to tourism micro

enterprises, as all customers are grouped and categorized by MFIs based on the type of loans and

only within the sub-activities presented above. This necessitates the need to dig deeper into these

segments to gather credit information for this assignment as some tourism activities, for example,

would be grouped within the “commercial” category while others would be flagged as “services”.

To mitigate this problem, several MFIs were briefed on tourism micro enterprises and activities

during the interviews. They were asked to identify and extract the total loans granted (during the last

two years) that pertain to the tourism activities listed in Annex E. To standardize and consolidate

required tourism credit data from the MFIs interviewed, they were provided with a template to fill in

Annex F. Extracting accurate data from respective MFI data bases was a limitation in identifying and

analyzing total loans acquired by tourism micro enterprises and their distribution across Jordan.


3.2 ANALYSIS OF THE SUPPLY SIDE - MFIS

This section presents the results and key findings of the interviews conducted with MFIs, the volume

of loans extended to tourism micro enterprises by interviewed MFIs, the legislative framework that

governs the lending process and the contribution of MFIs to the development and growth of tourism

micro businesses.

Before analyzing the main topics and themes that were discussed, the MFIs shared the following

important comments and feedback, mentioned at the outset of this section:

▪ MFIs are willing to grant loans to tourism activities, but the lack of specialized and diversified

loan guarantee programs that fully secure their own loan portfolios with a reasonable cost (other

than willing insurance companies) restrains their desire and willingness to venture into this

highly perceived risky sector. JLGC has a microlending guarantee program, but it is offered only

on an individual loan/application basis as opposed to a “portfolio” basis, which is what most

MFIs would desire to keep their current policies and procedures intact.

▪ The lack of credible and accurate financial and non-financial data on tourism micro enterprises

limits their ability to size the market, and thus discover missed opportunities in the local market.

▪ A few MFIs claim that their loan officers don’t have sufficient information on the nature of tourism

micro businesses and how to assess their loan applications.

▪ MFIs don’t have a standard definition for tourism micro activities. For example, restaurants are

sometimes classified as a commercial activity by some and as a service by others.

▪ Some MFIs claim that government agencies pay more attention to large-scale tourism projects,

such as luxury hotels, and place lower priority on micro tourism activities.

▪ The majority of MFIs have a product development division, yet lending products are not geared

towards a specific economic sector/activity, and therefore they can be accessed by all

businesses including tourism.

The analysis in the next section pertains to four of the five interviewed MFIs; one institution declined

to provide the requested data.

3.2.1 MFI Operations, Loan Guarantees and Credit Policies

During 2018, about 23,200 monthly loan applications were submitted by customers, with an average

ticket size of JD 3,375. Of those, 6.5% applications were for tourism activities. The loan approval

rate ranged between 90% to 99% with an average of 94%. The remaining 6% were rejected for

various reasons. Only one MFI opted for JLGC’s services to hedge against the risk of default, but it

offers it only to registered businesses.

The critical factors that MFIs consider and focus on when evaluating loan applications are:

➢ Ability of borrower to repay installments and interest

➢ Positive cash flow throughout the life of the loan, factoring in seasonality

➢ Ability of borrower to provide required guarantees/collaterals

➢ Practical and relevant experience/expertise of the borrower to manage their business effectively

➢ Loan purpose is compliant with set credit policies, which prohibit dealing with certain activities

such as bars/clubs or the purchase of certain items such as weapons and tobacco

Only two of the five interviewed MFIs adopt a centralized approach in their operation, while the rest

follow a mixed centralized/decentralized approach to evaluate and process loan applications. Those

that adopt a mixed approach have two credit committees, one of which is located at the Branch

Credit Committee, where it operates within a set authority matrix without referring back to the head


office (HO). This would naturally have a positive impact on the application turnaround time. For

those adopting a centralized approach, all credit applications get referred to HO for a verdict. In

general, reaching a credit decision takes two to seven working days, from the day an application is

submitted by a potential borrower until the final credit decision is made.

3.2.2 Legislative Framework for MFIs

Providing formal finance services for unbanked and low-income individuals, i.e., those who “do not

have access to financial services and are forced to rely on inconvenient, informal, and often risky

means to access credit”, which is primarily done through the microfinance sector, plays a vital role in

achieving financial inclusion, and thus human and economic development. The above funding

process contributes to achieving economic and social security by converting those individuals to

income generators rather than financial aid recipients – (CBJ).

Therefore, having a supervisory umbrella organization for the microfinance sector became a

necessity, to enhance and develop its vital role and achieve its sustainability. This need was

translated into a national strategy for microfinance in Jordan, which has been approved by the prime

ministry. A core objective of the strategy is the development of a unified regulatory and supervisory

framework for the microfinance sector.

To achieve this, CBJ has taken a strategic decision to expand its supervision role to include the

microfinance sector, and many steps have been taken towards that objective. The most important is

approval of the "Microfinance Companies bylaw" no. (5) of 2015 by the cabinet on the 14 December

2014, which was applied on the first day of June 2015. Generally, the bylaw sets the legislative

framework, including the placement of high standards of professional practices, regulating the

microfinance sector in the Kingdom, protecting its borrowers, achieving sustainability and ensuring

sound corporate governance that guarantees the presence of efficient administration and

management with the necessary expertise. Accordingly, a CBJ MFIs and Credit Bureau supervision

unit has been created with the following mandate:

➢ Studying/reviewing MFI license applications

➢ Off-site and on-site supervision to ensure MFI compliance with set laws and sound financial

positions

➢ Reviewing and analyzing MFI data and reports and preparing and releasing related reports

3.2.3 Financial/Non-Financial Products Development

Three of the interviewed MFIs have a dedicated unit that handles the development of existing

products/services and the introduction of new ones. The fourth one develops its financial products

by assigning employees who have the analytical skills to study and scan the local market to identify

financing opportunities/programs.

All five MFIs review their products periodically to update features, terms and conditions based on

market research and studies.

None of the interviewed MFIs have tourism-focused microfinance products/services. However, their

programs may be accessed by all economic sectors, including tourism. One MFI reported that it has

a plan to develop a new financial product for tourism micro businesses in the future.

Regarding available technical support, all MFIs offer non-financial services and provide technical

support to their customers in various areas to help improve their skills and build their capacity. The

non-financial services offered include:


➢ Management and financial training programs covering marketing, time management, economic

feasibility studies, leadership skills, business management and accounting

➢ Assisting borrowers to promote and market their products through networking and linking them

with bazaars and other distribution channels.

➢ Providing insurance to their clients in the event of death or permanent disability

3.2.4 Obstacles Faced by MFIs to Extend More Loans to the Tourism Sector

Banks are the primary source of funds for MFIs, with a larger share coming from local ones. Loan

tenors assigned by banks usually reflect the size and credit standing of an MFI. In general,

repayment periods are around nine months. For MFIs to match their current liabilities (bank loans)

with current assets (loans), they are usually obliged not to provide the “grace period” option to their

borrowers. This increases the probability of failure for many businesses, especially start-ups.

Furthermore, from the perspective of the MFIs interviewed, several factors increase their inherent

risk perception within the tourism sector and thus negatively influence their willingness to extend

credit facilities to these businesses. These factors are:

▪ Tourism sector seasonality and performance instability in terms of cash flow and annual income

generated.

▪ Political instability in neighboring countries, which has had a negative impact on the

performance of the sector.

▪ Precarious economic conditions affecting the Kingdom that have had a negative impact on all

economic sectors including tourism.

▪ The instability of government legislations, which puts an added burden on the performance of all

economic sectors and directly and indirectly affects business profit margins and

competitiveness. Examples include the income and sales tax laws, social security law, and

increased tariffs and custom duties on a large number of business inputs/raw materials.

▪ There are no specialized loan guarantee programs that fully secure MFI loan portfolios at a

reasonable cost. E.g., JLGC only provides guarantees on an individual loan/application basis.

▪ Higher risk of start-up businesses; higher rate of failure.

▪ The absence of government strategies supporting tourism micro enterprises, as the priority is

given to SMEs and large-scale projects.

▪ There is no protection, on the ground, for tourism micro enterprise products, especially for the

handicraft ones, as the door is open for importing similar goods at lower prices, which makes it

difficult to market and sell those “made in Jordan” products.

3.2.5 MFIs’ Contribution to the Development of Tourism Micro Enterprises

Data in Table 8 were obtained from four of the five interviewed MFIs. The fifth one declined to

provide the requested credit data.

Table (8) Total Loans Disbursed During 2018

Total loans

granted

Loans

to tourism Tourism share In Amman Tourism share

95,023,941 4,776,045 5% 838,385 18%

Source: 4 of the 5 interviewed MFIs

As per the above data, loans granted to tourism micro enterprises in 2018 amounted to JD 4.78

million, or around 5% of the total loans granted. The low percentage highlights the following:


▪ The contribution of MFIs to the development and growth of tourism micro enterprises is below

expectations in relation to the role played by the sector’s activities, which are widespread

throughout the Kingdom and promote self-employment, especially in rural and remote villages.

They are also essential for the recovery of other economic sectors.

▪ MFI are reluctant to extend more loans to the tourism sector due to many factors pointed out

earlier, the main ones being seasonality and high sensitivity to political and economic variables.

As for the distribution of tourism loans across Jordan, tourism activities located in Amman attracted

only 18% of the total loans granted throughout 2018, which is in line with MFI objectives of targeting

borrowers and markets outside Amman. Nevertheless, not all credit information requested was

provided by interviewed MFIs such as the distribution of tourism loans across all governorates,

hence, could not map tourism lending in Jordan.

3.2.6 Loan Interest Rates and Penalties on Due Payments

The MFIs interviewed charge interest rates on financial products between 9.6% and 21.6%, with an

arithmetic mean of 16.5%. In addition to the high interest rates, most MFIs impose penalties, which

amount to about JD0.5 per day, if a borrower fails to pay a loan installment on time.

Furthermore, there are adverse effects of the micro lending interest rates charged. The cost of

funding for micro enterprises is on average 10% higher than the cost of obtaining finance from local

banks for those with access. For many micro businesses, high interest rates are a major obstacle to

receiving adequate funding from MFIs, not to mention the higher probability of failure should the rate

of return fail to exceed business overheads by an acceptable margin.

3.2.7 Loan Amount, Tenor, and Grace Period

After studying the features of financial products introduced by interviewed MFIs, it has been found

that the arithmetic mean of minimum loan amounts that can be accessed by different economic sub-

sectors is about JD763, while the maximum arithmetic mean is about JD 6,066.

Loan repayment periods range between 6 to 36 months. Yet there is only one MFI that offers its

customers a grace period of up to six months. The rest of the interviewed MFIs do not offer a grace

period, which may often lead businesses to failure. This is especially the case with start-ups, which

need a grace period of not less than the operating cycle of the project to start generating enough

cash to cover operating expenses and pay loan installments.

3.3 ANALYSIS OF THE DEMAND SIDE - TOURISM ENTERPRISES

This section analyses the demand side findings by reviewing the outcome of FGDs with tourism

businesses in the four selected governorates: Jerash, As-Salt, Amman and Ajloun.

The following topics were discussed:

➢ Financing needs of tourism micro start-ups to either establish or expand their businesses.

➢ The main obstacles and challenges encountered by tourism micro enterprises to obtain required

funding from financial institutions.

➢ Areas of technical support needed by tourism micro enterprises to either establish or expand

their businesses.

➢ Information and tools needed by tourism micro enterprises to ensure they are aware of MFIs’

terms and conditions to obtain needed finance.

➢ Seasonality and cashflow shortages for tourism micro enterprises.

Insights of the four conducted sessions were as follows:


▪ All participants agreed on the following financing needs:

o Purchase of modern machinery & equipment.

o Establish/rent outlets or workplace for better reach & marketing or production capacity

expansion.

o Acquire raw material was shared by participants of As-Salt, Amman and Ajloun, while

covering wages and marketing expenses were amongst those listed by As-Salt and

sessions’ attendees.

▪ Based on all participants’ rankings across covered governorates, the number one obstacle

standing in their way of accessing the finance they need to either establish their new tourism

ventures or grow and develop their existing micro enterprises was the guarantees/collaterals

requested by MFIs. Higher interest rates charged came in second place, while preparing

requested financial Data/projections/feasibility studies came in third place. Lack of a grace

period and shorter loan tenor followed.

▪ Marketing/digital marketing and customer service were two areas that all participants listed as

needed technical support to either establish or expand their businesses. Preparing required

basic feasibility studies (including pricing) and business planning and development were shared

by participants in As-Salt, Amman and Ajloun as crucial areas of support required.

▪ Sixteen, out of a total number of focus group session attendees of thirty-eight, seem to have

enough knowledge on MFIs’ terms and conditions for extending micro loans (42%).

▪ Seasonality and cash flow shortages varied across different tourism activities and locals.

The following are the key findings from conducted FGDs in each governorate:

3.3.1 Jerash

An FGD was conducted on February 18, 2019 in Jerash. Nine participants attended, out of which six

were women. The participants operate the following tourism activities:

Restaurant 1

Bazaar shops 3

Handicrafts 2

Traditional food production 3

General Challenges

Some businesses in Jerash find it difficult to market and sell their products. They attribute this to

tourist guides who usually have a tight schedule allocated to tours in Jerash and thus do not allow

enough time for tourists to wander in the market and buy tourist products and services. This

adversely affects the sales of tourism enterprises.

Access to Finance Needs

Owners of tourism micro enterprises in Jerash look for financing for many reasons. Some projects

need to establish product-specific handicraft centers and need modern machinery and equipment,

while others require funding to expand their projects and increase production capacity to meet

domestic demand. Others want to renovate their existing establishments. Another need for funding

is to pay for miscellaneous expenses and license fees.

Challenges to Access Finance

Most enterprises agreed that their inability to provide adequate collaterals to MFIs and the high

interest rates charged on loans are the main obstacles they face when applying for a loan to


establish or expand their business. The inability of businesses to prepare/provide the required

financial information/statements for their business comes in third place.

Areas of Technical Support Needed by Tourism Micro Enterprises

The following summarizes the main types of technical support needed by Jerash session attendees,

to establish or expand their business:

➢ Management training: project management, marketing, customer service.

➢ Technical training: handicrafts skills (e.g. soap and shampoo), food production (cooking),

packaging, sewing and embroidery.

➢ Other support: participation in bazaars (exhibitions) inside and outside Jordan.

Information and Tools Needed by Tourism Micro Enterprises

Five out of the nine participants have good knowledge of what it takes to obtain funding from MFIs.

The rest don’t have sufficient information on how to prepare feasibility studies for their projects and

lack the knowledge and skills to prepare and provide needed financial data/records. They are also

unaware of MFI guarantee requirements.

Seasonality and Cashflow Shortages of Tourism Micro Enterprises

Three enterprises (traditional food production and handicrafts) confirmed that they do not suffer from

funding gaps during the year, as the demand for their products is stable. The rest suffer from

funding gaps, specifically in the winter season. Below are the funding gaps experienced by the

participants representing their sub-sector(s):

Restaurants December to February

Bazaar shops January to March

Handicrafts December to February

Traditional food production November to February

(dairy products)

Funding gaps for businesses are missed opportunities for MFIs if not properly seized. The decline in

revenues due to the lower demand for tourist products may lead to project failure if the project

cannot secure the necessary funding to cover its operating expenses during the funding gap. As a

result, MFIs could take advantage of lost opportunities by granting loans to tourism enterprises,

taking into consideration seasonality and/or periods of cashflow shortages through attaching other

needed features to concerned lending products such as emergency cash and/or installments’

postponement if these services are already not in place. The above would enable concerned

businesses cover their expenses, manage their cash flow, and avoid facing technical insolvency.

3.3.2 As-Salt

An FGD was conducted in As-Salt, Al Balqa governorate, on February 19, 2019. The session was

attended by 18 participants, out of which 14 were women. The following tourism activities were

present:

Restaurants 2

Motels 1

Home-stays 2

Handicrafts 6


Civil society organization reps 3


General Challenges

The participants from As-Salt possess high skills and have great enthusiasm. Some had success

stories to share despite the numerous challenges they face. The majority agreed on the following:

➢ Marketing their products/services is the main challenge they face and is a priority; some

considered it more important than accessing finance.

➢ Satisfying MFI guarantor/collateral requirements is a major obstacle to securing needed finance.

➢ Interest rates on micro-loans are very high.

➢ Short loan repayment periods (usually less than 36 months) pose a challenge where the

monthly installment amount becomes unaffordable.

➢ The minimum loan amount sometimes exceeds their financing needs.

➢ There needs to be a grace period when borrowing.

➢ Obtaining a loan is a lengthy and complex process.

➢ The participation of women in some businesses is still not culturally acceptable, and this is a

major challenge for many women who have the talent and ability to start their own business.


Tourism micro enterprises in As-Salt need loans for the purchase of fixed assets, such as sewing

machines and embroidery, home appliances and furniture, in addition to purchasing raw materials,

renting outlets to expand reach, establishing new businesses, covering marketing and promotional

expenses, creating websites to promote products, and employing staff to expand their business.


Most participants have previous experience in dealing with local banks and/or MFIs. The majority

agreed that the inability to provide required loan collaterals/guarantors is the most pressing hurdle

they face. High interest rates rank second. Furthermore, most of the participants consider their

inability to prepare basic financial statements and cash flow is a key obstacle to accessing the

finance they need to establish a new business or expand an existing one.


The following summarizes the main types of technical support needed by the attendees of the As-

Salt session to establish or expand their business:

➢ Management training: marketing (including digital), customer service, preparing basic feasibility

studies, project management, business development, pricing, costing, and basic financial

management.

➢ Technical training: packaging and food production (cooking).


Eight of the participants had sufficient knowledge about MFIs requirements to be able to apply for a

loan, eight others did not, and two did not answer the question.


Restaurants No cashflow issues

Motels No cashflow issues

Home-stays No cashflow issues

Handicrafts November to February

Traditional food production October to March

Civil society organization reps. N/A

Based on the above, tourist restaurants, coffee shops, motels, and home-stays in As-Salt do not

experience funding gaps during the year, while handicraft and traditional food production business


do, especially in the winter season where low demand for their products puts them under financial

stress. This makes it difficult for them to honor their financial commitments during the periods listed

above. Attendees suggested the following to resolve the issue:

➢ Provide borrowers with a “moratorium” period during the funding gap

➢ Offer some sort of short-term finance during the funding gap to enable them to honor their

operating financial commitments

3.3.3 Amman

An FGD was held in Amman on February 20, 2019. Four people attended, three of which were

women. The participants operate the following activities:

➢ Soap and cosmetics making

➢ Traditional Circassian embroidery

➢ Souvenirs

➢ Embroidery on satin.

General Challenges

While participation was low, those who did take part had high technical skills, cultural merits, and

were well educated.

All four participants have plans to develop and expand their existing businesses to meet the high

demand for their products. They confirmed that the demand for their products sometimes drops

slightly, mainly at the end of the tourism season and the return of expatriates by the end of the

summer holiday. Participants suggested the following:

➢ Networking and cooperating with businesses to market their products throughout the year.

➢ Contracting and collaborating with schools/vocational training centers and other businesses to

provide specialized training to those interested in their crafts. This would address their challenge

of finding professional skilled labor, which affects growth and development of their businesses.


The Amman session participants unanimously agreed that they need funding for the following:

➢ Wages and labor expenses.

➢ Purchase of machinery and equipment to produce tourist products rather than relying on manual

labor, which sometimes cannot meet the high demand for these products.

➢ Purchase of raw materials.

➢ Expansion of existing businesses by renting outlets/shops instead of being home-based.

➢ Operating expenses, such as marketing and promotional activities.


Participants agreed that the following are the key challenges they face in obtaining loans from MFIs:

➢ Providing MFIs with required collaterals/guarantor(s).

➢ High charged interest rates.

➢ Inadequate/insufficient (maximum) loan amount.

➢ Inability to conduct feasibility studies and prepare cashflow statements, especially for new

projects.

➢ Short grace and loan repayment periods.

➢ The length and complexity of the procedures to obtain a loan, coupled with the large number of

documents required by MFIs.


Participants suggested simplifying procedures and requirements regarding collateral/guarantees, in

addition to offering an appropriate grace period, especially to start-ups.


The following summarizes the main types of technical support needed by the Amman session

attendees to establish or expand their business:

➢ Management training: pricing, digital marketing and promotion, business planning, financial

planning, basic feasibility studies, basic accounting, customer services and quality control.

➢ Technical training: fashion design and electronic embroidery.


Only one participant lacked the knowledge about MFI requirements to obtain a loan; they reported

not having previous experience in dealing with banks nor MFIs. The rest confirmed they are fully

aware of MFI requirements and had previously applied for loans from banks and MFIs. One of them

had applied for a loan from an MFI, but the application was rejected due to their inability to provide

sufficient collaterals as the business was a start-up.


All businesses reported that demand for their products during the year is good and almost stable.

Also, they are aware that the instability of Jordanian economic conditions has a negative impact on

the volume of their sales. Participants expect that the anticipated improvement of economic

conditions will increase demand for their products. While some reported to have funding gaps, they

pointed out they have the skills to diversify what they produce during the year to mitigate seasonal

demand fluctuations and maintain their sales volume.

Handicrafts – Embroidery on satin November to February

Handicrafts – Soap and cosmetics October to December

Handicrafts – Circassian embroidery No cashflow issues

Souvenir shop February, May, and Ramadan

3.3.4 Ajloun

An FGD was conducted in Ajloun on February 24, 2019. Seven participants attended the session,

out of which three were women. The participants operate the following tourism activities:

Restaurants 2

Bazaar shops 1

Home-stays 1

Handicrafts 2


General Challenges

According to the participants, Ajloun lacks several tourist services such as classified hotels, tourist

restaurants and home-stays. There is only one classified tourist restaurant in Ajloun. Participants

complained about the lack of public/private cooperation and joint efforts to support and market their

products, especially handicrafts. They criticized the multiplicity of government bodies for licensing

activities, the taxes imposed, lack of reliable transportation to and from Ajloun, and high cost of

participating in bazaars in Amman.

Moreover, participants criticized the infrastructure and poor quality of basic and secondary services

available at touristic sites in Ajloun. In addition, tours to Ajloun are usually only one hour long and

confined to Ajloun Castle, although there are many other attractions such as waterfalls, Mar Elias

and Ajloun Nature Reserve.


There are also some entities in Ajloun that refuse to extend grants to tourism micro businesses,

arguing that most of the businesses that obtained grants from these parties in the past have failed.

Tourist shops witnessed a sharp drop in demand for their products following the relocation of the

Ajloun visitor center from downtown, where most shops are located, to the Ajloun Castle.

As for anticipated future tourism projects in Ajloun, attendees stated that there is a MoTA plan to

build a cable car in Ajloun. Moreover, many investors recently obtained licenses to build classified

hotels, which might help stimulate tourism in Ajloun.

Attendees made the following suggestions:

➢ MoTA should intensify its promotional programmes for all tourist sites in Ajloun, especially in the

winter season, where the number of tourists decreases sharply due to the cold weather in

Ajloun.

➢ There should be some grants program (instead of loans) of between JD 3,000 to 4,000, and

these grants should be channelled to successful businesses only, without nepotism.

➢ Events and night activities should be arranged in Ajloun, like those in Petra, which will

encourage tourists to stay longer and thus increase sales of tourism products.


Participants listed the following reasons/purpose behind their need for financing:

➢ Renting outlets/shops for better reach and marketing than home-based ones.

➢ Purchase of raw materials (handicrafts) and equipment and tools (traditional food production).

➢ Maintenance work for home-stays.

➢ Building warm swimming pools at tourist restaurants to attract more tourists and extend their

stay, especially in the winter season.

➢ Purchase of bicycles for tourism adventure activities.

Most women who attended the session depend on self-financing with modest capital. Despite the

need for further funding to expand their existing businesses, they refuse the idea of obtaining loans

from MFIs as they believe they will not be able to honor their financial commitments in such

unstable current economic conditions, which will lead to loan default and legal issues.


The most important challenges experienced by Ajloun’s participants are:

➢ High interest rates and fees.

➢ Inability to provide collateral/guarantees.

➢ Short repayment and grace periods.

➢ Weak capacity to conduct basic feasibility studies and prepare financial statements and

expected cashflow for new projects.

➢ Length and complexity of procedures to obtain loans.


Although JOHUD in Ajloun offers training workshops on how to conduct basic feasibility studies for

micro projects, along with several programs on entrepreneurship and creative thinking, session

participants expressed great interest in attending training courses on the following:

➢ Management training: digital marketing, business planning, customer service, preparing basic

feasibility studies, business development, and pricing.



The general impression among most attendees is that MFIs focus only on collateral/guarantees

when granting loans. Their knowledge of other MFI requirements is superficial. From their answers

to the pre-set guiding questions regarding the most challenging obstacles that may limit their ability

to secure needed funding, it was apparent that they need to acquire the required knowledge to

ensure they understand MFI requirements, improve their financial analysis skills and be able to

prepare feasibility studies and cashflow statements.


The funding gap is created when sales of tourist products and services decrease sharply, as below:

Restaurants November to February

Bazaar shops November to February

Home-stays Not established yet; new project

Handicrafts Summer season

Traditional food production Summer season

The demand for handicrafts and traditional food production in Ajloun declines in the summer

season, while the demand for tourist products (from bazaar shops) and restaurants decreases in

winter. Accordingly, there is a need for funds during these periods to cover their operating costs

and/or fulfill their loan repayments.

Participants suggested simplifying the procedures of obtaining financing during the funding gap or

postponing payments during that period so that borrowers can manage their cashflow and repay

during recovery and peak periods.

4. CREDIT GAP - CAUSES AND EFFECTS

Based on the findings of the assessment, the study concludes that the credit gaps experienced by

tourism micro enterprises are missed opportunities that could be seized by willing MFIs.

Furthermore, seasonality should not be a reason for MFIs to refrain from granting loans to tourism

enterprises, as the opposite is true. To help MFIs take advantage of lost opportunities in the local

credit market, it is necessary to first identify the critical factors that have contributed to the credit gap

and then make reasonable recommendations to bridge or mitigate these gaps.

This section highlights the key factors that have contributed to the credit gap from both

perspectives, the demand (tourism micro enterprises) and the supply (MFIs). These factors were

identified, analyzed, and summarized based on the outcomes and findings of the study.

Based on the analysis, it is clear that the identified credit gap cannot be attributed to any side alone;

the evaluation and assessment must be comprehensive and integrated considering all factors that

contributed to creating the gap, whether on the demand or the supply side, or elsewhere. Therefore,

and for simplicity and clarity, the critical elements causing the credit gap were classified into:

(1) Supply side factors

(2) Demand side factors

(3) Third-party related factors

4.1 SUPPLY-SIDE RELATED FACTORS

4.1.1 High Interest/Profit Rates on Loans

The average interest/profit rate on financial products offered by interviewed MFIs is 16.5%.

Interest/profit rates on some financial products reach 21.6%. This high cost of borrowing is a major


barrier for tourism micro enterprises which would discourage them from obtaining required financing

and is one of the most significant factors leading to their failure if the rate of return attained by such

enterprises is less than the cost of funding.

4.1.2 Guarantees and Collaterals

Higher sensitivity of tourist activities to unstable political and economic conditions increases the

risks associated with these activities. As a result, some MFIs remain reluctant to extend more or

expand loans for the tourism sector without securing enough collaterals as prerequisites. This issue

and the high interest/profit rates charged were the key obstacles, expressed and listed by session

attendees across selected governorates, to obtaining required funds from MFIs. This is especially

the case for start-up ventures due to their inability to provide adequate collaterals.

4.1.3 Grace Period

MFIs usually borrow funds from local banks to re-lend to individuals and economic sectors. Bank

loan terms depend on the size, performance and credit record of borrowing MFIs. However, MFIs

are usually reluctant to borrow for more than a nine-month period to keep their cost of funds within

target levels. Nevertheless, to match their current liabilities (bank loans) with current assets (loans

granted), MFIs often cannot offer a grace period for lending products.

4.1.4 Loan Installments’ Terms

For many borrowers seeking micro lending, to either establish or expand a tourism venture, high

installment amounts (as a result of short repayment terms which is usually a maximum of 36

months) pose a serious challenge.

4.1.5 Tourism Specific Financial Products

MFIs do not have tourism micro lending products or financing programs that specifically target

tourism micro businesses, let alone start-ups. Their products can be accessed by all sectors,

including tourism. Accordingly, offered financial products do not take into consideration the nature

and uniqueness of tourism businesses such as sales and cash flow volatility during the year due to

seasonality.

4.1.6 Internal Procedures

Based on their experience with several financial institutions, all focus group participants have stated

that the length and complexity of procedures to obtain needed finance represent a challenge.

4.2 DEMAND-SIDE RELATED FACTORS

4.2.1 Seasonal Challenges

The volatility of sales, cash flow and income generated during the year increase the credit risk for

tourism micro businesses. This makes it one of the reasons, if not the primary one, why MFIs have

a perceived low appetite for extending loans to such high-risk activities without sufficient guarantees

and/or collaterals.

4.2.2 Lack of Knowledge

Many tourism micro enterprises, especially in governorates outside Amman, have no knowledge or

lack information on MFIs’ terms and conditions for applying for loans. This includes information on

guarantees/collaterals, historical financial records and cashflow projections.


4.2.3 Technical Skills

Most tourism business owners who took part in conducted FGDs lack the basic skills in

management, both financial and technical. They need specialized training to build their capacity,

mainly in preparing basic budgeting and financial statements, bookkeeping, cashflow

statement/projections and feasibility studies. These are crucial to transforming any tourism micro

enterprise from being incompliant with financing prerequisites to highly sought after/targeted

borrowers.

4.3 THIRD-PARTY RELATED FACTORS

4.3.1 Definition of Tourism Micro Activities

MoTA, as the national regulatory body responsible for regulating the tourism sector in Jordan,

identifies what are tourism professions and activities. However, those activities lack some that relate

to the overall tourism value chain, hence, no comprehensive or standard definition of tourism related

activities in Jordan exists to facilitate the segmentation of loans granted to such businesses by

MFIs, and subsequently, determine other financial and non-financial indicators related to the sector.

4.3.2 Non-Financial Information

There is insufficient information on the number and type of tourism micro enterprises in the

Kingdom. Also, their distribution and market size across Jordan cannot be estimated due to the fact

that a good portion of them exercise their activities informally (not licensed).

4.3.3 Financial Indicators

Lack of accurate and segmented financial data on tourism micro enterprises limits the ability of MFIs

and other stakeholders to fully understand their financial needs, the risks associated with this sector,

credit gaps and many other indicators.

4.3.4 Loan Guarantee Programs

Currently, there are no specialized guarantee programs that fully guarantee tourism micro loan

portfolios at a reasonable cost. For example, JLGC provides micro loan guarantees but for

individual loans and on a case-by-case basis. Unfortunately, this limits the willingness of MFIs to

expand their lending to tourism enterprises. The other available option would be to seek the

services of specialized insurance companies, which may prove to be an expensive alternative.

4.3.5 Coordination and Joint Efforts

There seems to be a lack of coordination and joint efforts amongst government agencies, private

sector and civil society organizations (community-based organizations) to support, protect and

market tourism micro enterprises’ products, especially at governorates outside Amman. This

imposes further challenges to tourism businesses and impedes their competitiveness and ultimately

their survival. A good example is the tourism handicrafts market.

5. RECOMMENDATIONS TO BRIDGE THE GAP

The following recommendations are proposed for MFIs willing to seize and capitalize lost

opportunities in the local micro credit market. These recommendations would address and consider

the difficulties and challenges experienced by tourism businesses, thus, help alleviate a significant

part of existing credit gap.

▪ Develop and launch a flexible tourism focused micro lending product/program. Proposed

features are:


o Flexible/cashflow-based installments. Taking into consideration the seasonality of

tourism, loan installments could be matched with respective business cash flow throughout

the year. Other options may be considered (for a reasonable fee), such as installment

postponement and/or emergency cash. By “installment postponement”, we mean those

initiated by borrowers’ requests not MFIs during specific seasons and/or holidays.

o Lower/competitive interest/profit rates. As the loan amount for start-ups would be larger

and the repayment period longer, it is feasible to offer a lower-than-average interest/profit

rate. Moreover, streamlining the loan granting process (criteria-based lending) would help

keep associated costs/overheads in check, hence, ensuring the viability of the product.

Furthermore, favorable/lower interest/profit rates could be granted to those loans guaranteed

by JLGC, thus, encouraging informal tourism businesses register their enterprises

accordingly.

o Longer repayment period (capped at 60 months). This would reduce the monthly payment

(loan installment and interest/profit), thus making it more affordable for target tourism

businesses. For MFIs, the repayment period extension would offset the reduction in the

interest/profit rate, as the longer the repayment period, the greater the amount of

interest/profit the borrower would pay.

o Grace period (capped at 12 months). This is crucial for start-ups, as the period for setting

up their business is longer, hence, income stream delayed.

o Faster loan disbursement. This may be achieved through streamlining the loan granting

process (criteria-based lending).

o Easier guarantee/collateral requirements. This can be done by giving more weight to

cashflow analysis. However, this specific loan feature would be easier to achieve if the

following recommendation is applied:

✓ Seek the services of JLGC (if not already in place). What makes MFIs refrain from doing

so is that JLGC offers their services on an individual loan/application basis, as opposed

to a portfolio basis (requested by MFIs). Due to a much lower ticket size (average

microloan amount in Jordan is JD 500+), MFIs could not see the value in seeking such

services. On the contrary, doing so would disrupt their current loan processing

procedures by adding an additional step and prolonging loan disbursement turnaround

time. Nevertheless, transferring a significant level of “risk of default” to a third party is

crucial to improve MFIs willingness to expand their tourism lending portfolios (including

start-ups). To facilitate the above and attain a “win-win” scenario, the following points

may be discussed with JLGC to secure an agreement:

(1) Only offer JLGC’s guarantee to higher ticket-sized loans, and/or

(2) obtain JLGC’s blanket approval on lower ticket-sized loans, or

(3) seek JLGC’s blanket approval on specific agreed upon lending products/programs;

signed-off product program(s) by both parties including respective product’s credit

policy, features, procedures, authority matrices, etc.

▪ Offer an extensive and intensive modular tourism training program that covers business/financial

development/planning, pricing, and marketing/digital marketing. To address its modularity, a pre-

training assessment test would need to be conducted. Furthermore, the study recommends

considering a different approach to current micro enterprises capacity building practices. MFIs

could consider successful completion of such a training program as a pre-requisite to lending.

Another valuable addition to proposed capacity building practices would be the introduction of a


“mentoring” program delivered by experts/champions within each tourism sub-activity. In

general, above proposed capacity building program is not offered by most interviewed MFIs and

would certainly contribute to beefing-up respective product’s value proposition in addition to

both, increase demand for proposed tourism microlending program (new borrowers) and

reinforce current borrowers’ loyalty to implementing MFIs.

▪ Beef-up above proposed tourism microlending product’s value proposition through forming key

3rd party alliances. Such alliances may include:

o Suppliers’ network. Based on current tourism portfolio and derived by prevailing specific

tourism activities, several FGDs would need to take place to identify key raw materials used

by most tourism borrowers, after which concerned MFIs would form needed partnerships

who would offer their borrowers competitive and favorable deals.

o Market access. Facilitate market access and linkages to tourism borrowers through forming

required partnerships with seasonal bazaars (e.g. Jara Market), wholesale distributors and

retailers, large corporations (for seasonal and/or yearly gifts or giveaways).

o E-commerce. Develop & launch an online portal/e-commerce platform for tourism

borrowers, or link to an existing one.

▪ Conduct periodic tourism microlending workshops across Jordan to raise awareness among

tourism businesses on available tourism lending programs, and what it takes to obtain it. This

will ensure that target segments are constantly updated with the information and requirements

needed to secure tourism lending program services, including pre and post-lending

consultancy/training services (non-financial services).

▪ In coordination with MoTA and willing MFIs, Tanmeyah (as a representative of Jordan’s MFIs)

need to identify and standardize tourism activities, after which MFIs can conduct data cleansing

and system amendment exercises. This will help current and future stakeholders to more easily

track and evaluate tourism micro financial indicators. In general, segmentation in the

microlending arena needs some efforts and collaboration from all stakeholders. CBJ’s

involvement would certainly help and add value here.


ANNEXES

Annex (A): References

No. Document Author Year Content Summary

1. Access to Finance Guide for the

Tourism Sector

USAID Building

Economic Sustainability

through Tourism project

2017

Sources of funding

available to the tourism

sector in Jordan

2.

Analysis and Documentation of

Findings – Access to Finance

Survey and Focus Groups

USAID Building

Economic Sustainability

through Tourism project

2016

Access to finance needs

and obstacles faced by

tourism SMEs

3. Small Enterprises Finance in

Jordan Dr. Thair Adnan Kaddumi -

Obstacles and challenges

faced by micro enterprises

in Jordan

4. National Tourism Strategy (2018-

2020)

Ministry of Tourism and

Antiquities 2018

Strategic objectives and

key performance

indicators

5. Microfinance Industry

Performance Tanmeyah 2018

Microfinance in Jordan

and key performance

indicators


Annex (B): MFI’s Guiding Questions

1. On average, how many loan applications do you receive per month? How many of these

applications do you approve and how many do you decline?

2. What is the average ticket size of the loans granted to the tourism micro sub-sector?

3. What are the most important factors you take into consideration when deciding on tourism

loan applications?

4. In general, what is the loan default ratio?

5. Please explain any legislative framework governing your lending

6. Do you follow centralized or decentralized operations in granting loans?

7. Do you have a dedicated department specialized in developing existing financial products

or introducing new products?

8. If the above answer is yes, please indicate when existing products were last updated

9. What are the main obstacles you encounter in granting credit facilities to tourism micro

start-up businesses?

10. Does your internal credit policy have restrictions on extending credit facilities to tourism

micro start-ups? If yes, please explain further

11. Do you have products or financing programs that specifically target tourism micro start-up

enterprises?

12. Do you have any plans to develop existing products or introduce new ones?

13. Do you have non-financial services for the purpose of supporting and building the capacity

of employees in the tourism micro start-ups sector?

14. Have you signed an agreement with any government agency or private entity to guarantee

the loans portfolio?

15. What is the turn-around time to process the application?

16. What is the amount of micro lending granted to the tourism micro enterprises?


Annex (C): Focus Group Discussions’ Guiding Questions

1. What are generally the most important needs to either establish or expand your tourism

business?

2. What are the major obstacles you face to either establish or expand your tourism

business?

3. Are you interested in obtaining loans from financial institutions?

4. What type of loans do you need to either establish or expand your tourism business?

5. For the purpose of financing your tourism business, do you rely on self-financing or resort

to financial institutions or both?

6.

What are the most significant obstacles you face to acquire loans? Please rank the

following from the most important “1” to the least important “10”:

( ) Inability to provide collateral

( ) High interest rate and fees

( ) Weak capacity to prepare financial statements

( ) Inability to prepare expected cash flow for new projects

( ) Lack of experience in the field

( ) Turn-around time needed to process your loan application

( ) Number of required documents and/or other requirements

( ) Lack of a feasibility study for the project or inability to conduct one

( ) Short time of repayment and grace period

( ) Others, please specify

7.

Have you ever applied to finance your project from any bank or financial institution during

the last three years? If yes, please indicate the following:

( ) Name of financial institution(s)

( ) The number of times applied for finance

( ) The number of times your application(s) for finance were approved

( ) Financing objectives/purpose

( ) The number of times your application(s) for finance were rejected

( ) The reasons for rejecting your application(s)

( ) If you had a payment(s) default, please indicate the reason(s)

8. Do you have sufficient information on the requirements of financial institutions to obtain

finance?

9. What is the peak or seasonal period for your business?

10. Do you suffer from a financing gap? Please provide details

11. Would you like to attend workshops or training courses in your field? If the answer is yes,

what type of workshops or training courses are you interested in?


Annex (D): Sectorial Distribution of Microfinance

Type of loans Amman Balqa Zarqa Madaba Irbid Mafraq Ajloun Jarash Karak Tafileh Ma’an Aqaba

Commercial 51% 42% 42% 45% 45% 42% 49% 47% 31% 35% 29% 43%

Industrial 5% 1% 2% 4% 3% 1% 4% 4% 1% 3% 1% 1%

Services 11% 10% 10% 9% 9% 6% 8% 4% 4% 7% 12% 10%

Agriculture 0% 3% 0% 12% 1% 1% 0% 1% 5% 2% 1% 0%

Educational 1% 2% 1% 1% 1% 1% 1% 1% 3% 1% 4% 1%

Home Maintenance 15% 24% 28% 19% 22% 14% 18% 25% 23% 26% 29% 26%

Health Care 0.25% 1% 0% 0.47% 0% 1% 1% 0.14% 1% 3% 5% 0.24%

Vocational 0.18% 1% 1% 0.19% 1% 1% 1% 0.26% 2% 0.29% 3% 0.43%

Consumer 15% 16% 16% 20% 17% 32% 17% 19% 29% 23% 16% 18%

Islamic Rituals 0% 0% 0.04% 0% 0.10% 0% 0.18% 0.04% 0% 0% 0% 0%

Sources: Tanmeyah, 2018 Q4 report


Annex (E): Tourism Activities (for guidance purposes)

1.

Lodging facilities:

▪ Hotels (including non-classified)

▪ Motels

▪ Hotel Apartments

▪ Hotel Suites

▪ Resorts

▪ Hostels

▪ Rest-houses

▪ Camps

▪ Home-stays

2.

Food & Beverage:

▪ Restaurants (including fast-food restaurants)

▪ Cafes

▪ Coffeeshops

▪ Bars/Pubs

▪ Discos

▪ Nightclubs

▪ Traditional Food Production

3. Entertainment/Theme Parks

4. Bazar/Antique Shops

5. Handicrafts

6. Diving Centers/Water Sports

7. Travel Agents/Tour Operators

8. Tour Guides/Tourist Escorts

9. Car Rentals/Tourism Transport

10. Music/Folklore Bands

11. Agritourism (farms, Bee Apiaries, etc.)


Annex (F): Financial Data Requested from MFIs

1.

Portfolio Information:

▪ Total loans granted during 2017 & 2018

▪ Total loans granted to tourism enterprises during 2017 & 2018

▪ Number of borrowers

▪ Loans portfolio/outstanding balance – all sectors (2017 & 2018)

▪ Tourism loans portfolio/outstanding balance (2017 & 2018)

2. Branches Information:

▪ Total loans granted to tourism enterprises during 2018 – per governorate

3.

Products Information (per lending product):

▪ Total loans granted during 2018

▪ Total loans granted to tourism enterprises during 2018

▪ Product default ratio (non-performing)

▪ Target market/segment

▪ Product features:

✓ Maximum credit exposure/ceiling

✓ Minimum credit exposure/floor

✓ Maximum loan tenor/period

✓ Grace period (if any)

✓ Annual interest rate

✓ Annual fees

✓ Collaterals/guarantees

✓ Documentation requirements

✓ Other terms and conditions

Documents

Tourism Microlending: Market Research Findings and Conclusion