US embassy cable - 02AMMAN3084

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. 
 
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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. 
 
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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. 
 
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OTHER 
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-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