Identifier
Created
Classification
Origin
02AMMAN3084
2002-06-11 11:06:00
UNCLASSIFIED
Embassy Amman
Cable title:  

JORDAN: MIDDLE EAST PARTNERSHIP INITIATIVE SURVEY

Tags:  ECON EFIN JO 
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UNCLAS SECTION 01 OF 02 AMMAN 003084 

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN JO
SUBJECT: JORDAN: MIDDLE EAST PARTNERSHIP INITIATIVE SURVEY

REF: STATE 100859

UNCLAS SECTION 01 OF 02 AMMAN 003084

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN JO
SUBJECT: JORDAN: MIDDLE EAST PARTNERSHIP INITIATIVE SURVEY

REF: STATE 100859


1. Following are answers to the questions posed in reftel.
We would be happy to provide more detailed answers on
request. Jordan already has a large, well-functioning
micro-finance sector that is supported by USAID and other
institutions. As a general observation, we believe that a
regional institution that would be able to support training
and serve as a consultant to new and existing microfinance
institutions, and that could publish training and other
material in Arabic, would add economies of scale to a
regional microfinance initiative. We understand that this
subject was discussed at a recent USAID-sponsored
microfinance conference in Morocco.


2. Begin Questions and answers.

-WHAT IS THE DEFINITION OF SMALL AND MEDIUM SIZE ENTERPRISES
(SME) IN YOUR COUNTRY? ANNUAL REVENUES?

Jordanian SME's typically have annual revenues of $0-10
million.

-WHAT SIZE OF INVESTMENTS DO SME'S TYPICALLY SEEK?

A typical investment size for a Jordanian SME could be $1-2
million.

-WHAT IS THE AVAILABILITY OF CAPITAL (OF ALL TYPES) TO THE
SME MARKET SEGMENT?

Jordanian SME's generally rely on "friends and family" for
financing for both start-up and expansion. Strict collateral
and other requirements make it difficult to call on bank
financing for other than working needs. However, some small
"venture capital" funds are beginning to emerge. For
example, the local firm Foursan has been working with
Deutsche Bank to create a $20 million venture capital fund
that would be seeded by $10-$20 million in government
privatization revenues.

-IS CAPITAL AVAILABILITY A FACTOR IN THE GROWTH OF THE SME
SEGMENT OF THE ECONOMY?

Growth of the SME sector is definitely inhibited by limited
access to capital. Another important factor is limited
management expertise, a subject that is being addressed
through USAID's "JUSBP" program and the EU's "EJADA" program.

-HOW ARE SME'S TYPICALLY FUNDED, I.E. INTERNALLY GENERATED
CAPITAL, FAMILY LOANS, DEBT, EQUITY, ETC?

See above.

-DO SME'S USE EXISTING FINANCIAL INTERMEDIARIES FOR THEIR
CAPITAL NEEDS?

See above. Access to financial intermediaries is limited,
although growing.

-IS THERE A SEGMENT OF THE MARKET THAT WOULD BENEFIT FROM
MICRO-CREDIT PROGRAM? DOES THIS SEGMENT OF THE MARKET HAVE
ACCESS TO CAPITAL AND ON WHAT TERMS? WHAT ARE THE CAPITAL

NEEDS OF THIS MARKET?

The USG has supported the creation of a vibrant and growing
microfinance industry. Currently, four such institutions,
utilizing international best practices related to lending
procedures, are operating. Over the last four years these
institutions have provided over 90,000 loans. A recent study
shows that between these and other institutions presently in
place, there is little need for a further expansion of
capital suppliers.

--------------
FINANCIAL INTERMEDIARY ANALYSIS
--------------

-DO FINANCIAL INTERMEDIARIES SERVICE THE SME MARKET SEGMENT?
HOW WELL?
Financial intermediaries (primarily commercial banks) do
service the SME market segment to a limited extent. However,
their strict collateral requirements and overall conservative
outlook reduce their effectiveness in servicing SMEs
financial needs.

-WHAT IF ANY TYPES OF FINANCIAL INSTRUMENTS ARE USED TO
SERVICE SME'S?

Credit granted through loans and L/Cs is the most common type
of financial instruments used to service SMEs.

-ARE THERE POTENTIAL PROFITABLE MARKET NICHES IN THE SME
SEGMENT THAT ARE CURRENTLY NOT BEING EXPLOITED?
Market niches for SMEs in Information and Communication
Technology, consultancy, financial services and the health
sector exist and remain under-explored.

-ARE THERE ANY FINANCIAL INTERMEDIARIES THAT PROVIDE CAPITAL
TO THE MICRO-MARKET? ARE THEY EFFECTIVE?

Yes, the micro-market is quite well served (see the answer
above). A regional microfinance program that took advantage
of economies of scale related to the industry as a whole,
however, could be very effective at delivering specific
services on a regional basis. These include general
training, consulting services, and printed materials in
Arabic.

--------------
REGULATORY ENVIRONMENT
--------------

-ARE THERE ANY REGULATORY RESTRICTIONS ON THE OPERATION OF A
FOREIGN-OWNED FINANCIAL INSTITUTION (E.G. ENTERPRISE FUND,
MICRO CREDIT PROGRAM) OPERATING IN YOUR COUNTRY?

No. Foreign-owned financial institutions are treated on par
with local ones.

-COULD STATE-OWNED AND/OR PRIVATE INVESTMENT FUNDS FROM YOUR
COUNTRY INVEST IN AN ENTERPRISE FUND WITHOUT PARTICIPATING IN
THE MANAGEMENT OF THE FUND?

While no regulations exist in this regard, private/public
investment funds would likely (but not necessarily) wish to
participate in the management of an enterprise fund in which
they invest. State-owned investment funds, such as the
Social Security Corporation, face restrictions regarding
off-shore investing.

-COULD AN NGO-BASED MICRO-CREDIT PROGRAM OPERATE IN YOUR
COUNTRY?

Several NGO-based microfinance organizations currently
operate in Jordan.

--------------
OTHER
--------------

-WOULD THE OPERATION AND PRESENCE OF AN ENTERPRISE FUND IN
YOUR COUNTRY HAVE A CATALYTIC EFFECT ON STIMULATING PRIVATE
SECTOR INVESTMENT?

In addition to providing financial resources, an enterprise
fund that offered high-quality technical financial advice
could be an important addition to the Jordanian private
sector.

-WOULD PRIVATE CAPITAL FROM YOUR COUNTRY BE INTERESTED IN
PARTICIPATING IN AN ENTERPRISE FUND?

Private and possibly official capital could be interested in
participating in a well-managed, focused fund.
Gnehm