Jordan Microfinance Institutions' Financial Viability to ... - EuroJournals
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Jordan Microfinance Institutions' Financial Viability to ... - EuroJournals
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European Journal of Economics, Finance and Administrative Sciences<br />
ISSN 1450-2275 Issue 42 (2011)<br />
© <strong>EuroJournals</strong>, Inc. 2011<br />
http://www.eurojournals.com/EJEFAS.htm<br />
<strong>Jordan</strong> <strong>Microfinance</strong> Institutions’ <strong>Financial</strong><br />
<strong>Viability</strong> <strong>to</strong> Achieve Microcredit Outreach<br />
Eyad Malkawi<br />
Dean of Faculty of Economics & Administrative Sciences<br />
Jarash Private University, Jarash, <strong>Jordan</strong><br />
P. O. Box: 26150 Jarash, <strong>Jordan</strong><br />
E-mail: eyad63jo@yahoo.com<br />
Radi Al A<strong>to</strong>om<br />
Direc<strong>to</strong>r of Research and Policies Dept<br />
Economic & Social Council, Amman, <strong>Jordan</strong><br />
P.O. Box: 914035 Amman 11194 <strong>Jordan</strong><br />
E-mail: radia<strong>to</strong>um@esc.jo and, a<strong>to</strong>umradi@yahoo.com<br />
Abstract<br />
This paper focuses on analyzing the <strong>Jordan</strong>ian eight specialized MFIs’ financial viabilities,<br />
and its breadth of microcredit. The main objectives of the study were <strong>to</strong> investigate whether<br />
<strong>Jordan</strong>’s MFIs can maximize its outreach of <strong>Microfinance</strong> <strong>to</strong> cover more areas, especially<br />
remote areas, poverty enclaves and high rate of unemployment areas.<br />
Two phases of analyses were conducted, comparisons between <strong>Jordan</strong>’s MFIs at the<br />
Arab level, and comparative analysis among national MFIs. An industry norm is utilized<br />
for this comparison, in addition <strong>to</strong> the criteria initiated by SANABEL concerning outreach<br />
KPIs linked <strong>to</strong> return and risk KPIs that were used <strong>to</strong> fulfill the analytical comparisons.<br />
It was found that, <strong>Jordan</strong> MFIs are performing well in comparison <strong>to</strong> Arab MFIs.<br />
However, Its MFIs are rating the first among Arabs in allocating per capita money <strong>to</strong><br />
microcredit and, outreach concerns <strong>to</strong> serve women, It rates in the middle of Arabs in its<br />
MFIs financial viability. These results assures that, <strong>Jordan</strong> MFIs have a high potential <strong>to</strong><br />
play more role in the <strong>Jordan</strong>ian <strong>Microfinance</strong> sec<strong>to</strong>r, and <strong>to</strong> improve its financial policies <strong>to</strong><br />
widen its outreach <strong>to</strong> cover theinsatiable areas so as <strong>to</strong> fulfill the shortages of <strong>Microfinance</strong><br />
demand, and match the national challenges facing its socio-economic status; the poverty<br />
and unemployment.<br />
Keywords: <strong>Microfinance</strong> Institutions (MFIs), Key Performance Indica<strong>to</strong>rs (KPIs),<br />
Cooperative Group <strong>to</strong> Assist the Poor (CGAP), <strong>Financial</strong> <strong>Viability</strong>,<br />
Microcredit Outreach, Industry Norm.<br />
1. Introduction<br />
<strong>Jordan</strong> is considered the first country among MENA countries that experienced Microcredit, a corner<br />
s<strong>to</strong>ne of lending operations has been started since 1937 by the Near East Foundation NEF; an<br />
American NGO. NEF provides, mainly, technical assistants <strong>to</strong> <strong>Jordan</strong> entities, government and NGOs,<br />
in addition <strong>to</strong> financial supports from donor agencies throughout the world. Through its efforts, NEF<br />
help support the establishment of the core business of <strong>Microfinance</strong> in <strong>Jordan</strong>, especially, its wide
122 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
experience of Credit Schemes at the local communities in cooperation with grass root voluntary<br />
societies (Al A<strong>to</strong>om, 1998, P 8).<br />
In fact, the financial credit in <strong>Jordan</strong> is initiated by the Outman Bank during the Outman rule on<br />
Arab countries that focused its operations on agricultural credits; which was lately renamed the<br />
Agricultural Credit Corporation (ACC) in 1959. Aftermath, Arab Bank established its branch in 1930,<br />
followed by UNRWA in 1957, and Industrial Development Bank in 1964, and many other agencies<br />
were followed (Ibid, P 8).<br />
In 1996, the World Bank published the “Social Productivity from Concept <strong>to</strong> Action” report<br />
that has proposed the initiation of the four components <strong>to</strong>promote <strong>Jordan</strong>’s social productivity, of<br />
which <strong>Microfinance</strong> was one of the four major components <strong>to</strong> work on. Thereby, five microfinance<br />
companies were established; one private entity and four non-profit entities(World Bank, 1998, P23).<br />
2. Literature and of Related Studies’ Review<br />
2.1. The Theme of <strong>Microfinance</strong>: A Theoretical Perspective<br />
<strong>Microfinance</strong> is a concept that postulates the credit <strong>to</strong> micro and small business; it also includes<br />
savings; cash transfers; and insurance <strong>to</strong> poor and low-income people. Strictly speaking, it comes in<strong>to</strong> a<br />
wide concern for the developing countries after continual increase of poverty and unemployment, and<br />
lack of income equality.<br />
In order <strong>to</strong> be more effective and maintain community’s local development, microfinance<br />
institutions (MFIs) should provide both financial and non-financial services. Non-financial services<br />
envelop a well define of the target groups and target areas; target groups are the poor and/ or the<br />
unemployed, and the target areas are the areas that have the potential <strong>to</strong> establish a micro and small<br />
projects according <strong>to</strong> the local community needs’ assessment. Therefore, non-financial services<br />
envelop: business awareness, market surveys, training target groups on “how <strong>to</strong> start their own<br />
business”, providing feasibility studies, assisting in establishing their projects, providing them with<br />
business counseling, and assisting in marketing activities, consequently.<br />
The Consultative Group <strong>to</strong> Assist the Poor (CGAP) highlights eleven principles that are<br />
essential for building financial systems for the poor, of which the most important are: their need of a<br />
variety of financial products; ability <strong>to</strong> raise income; build their assets; integrate country’s mainstream<br />
financial systems; reach large number of poor people; can attract domestic deposits <strong>to</strong> be recycled in<strong>to</strong><br />
loans; governments have <strong>to</strong> enable others <strong>to</strong> develop financial services, and not <strong>to</strong> provide them<br />
directly; and <strong>Microfinance</strong> works best when it measures its performance, also when MFI produces<br />
accurate data on financial performance, as well as social performance (Brandsma&Bourjorjee, 2004, P<br />
9).<br />
2.2. Review of <strong>Microfinance</strong> Studies in <strong>Jordan</strong><br />
<strong>Microfinance</strong> in <strong>Jordan</strong> has studied fewtimes; it was firstly demonstrated through the World Bank WB<br />
in 2001 aimed at evaluating Development and Employment Fund DEF. The WB reviewed the small<br />
scale financing in <strong>Jordan</strong> via governmental organizations focusing on DEF activities, and<br />
recommending liquidating its assets and leaves the market <strong>to</strong> non governmental organizations NGOs<br />
(Brandsma, WB, 2001).<br />
In 2007, Planet Finance in cooperation with the Ministry of Planning & International<br />
Cooperation MOPIC and French Development Agency studied the activities of seven <strong>Jordan</strong>ian MFIs,<br />
through a field survey<strong>to</strong> a sample of 1314 MFIs’ beneficiaries, the study finding was mainly concerned<br />
with the beneficiaries’ characteristics, loans’ conditions, projects’ formalities, income of projects’<br />
owners, and the social impact of loans on the beneficiaries (Planet Finance, 2007).<br />
Recently, in 2011, there was a policy paper study published by the Economic & Social Council<br />
aimed at investigating the status of microfinance sec<strong>to</strong>r, and the policies that activate the role of MFIs
123 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
in achieving the socio-economic national goals for <strong>Jordan</strong>, especially in combating unemployment. The<br />
main recommendation of the study is that the government and the private sec<strong>to</strong>r, under their corporate<br />
social responsibility, should promote <strong>to</strong> establish more non-profit MFIs as an active <strong>to</strong>ol <strong>to</strong> combat<br />
poverty and unemployment(Economic and Social Council, 2011, P 2).<br />
Furthermore, International and Arab network entities always publish evaluative and comparable<br />
reports on Arab microfinance and international ones. SANABEL as an Arab specialized network<br />
usually publish Arab MFIs experience in financing microenterprises data and reports.<br />
Strictly speaking, no study <strong>to</strong>uched the MFIs’ financial viability in comparison <strong>to</strong> their<br />
outreach, either at the state level, or at entity level.<br />
3. The Study Methodology<br />
3.1. The Study Objective<br />
The study aims <strong>to</strong> investigate the ability and the credibility of <strong>Jordan</strong>ian <strong>Microfinance</strong> Institutions’<br />
(MFIs) <strong>to</strong> achieve lending outreach and width performance.<br />
3.2. Why the Study<br />
It’s widely believed that, microfinance is an appropriate <strong>to</strong>ol for local development. Therefore,<br />
microfinance programs have <strong>to</strong> be developed for the poor and, local communities as an overarching<br />
objective, not as an end in itself. To do so, MFIs should have an outreach ability and mechanism <strong>to</strong><br />
cover poor and remote areas in need <strong>to</strong> promote the unemployed people <strong>to</strong> establish and develop<br />
income- generating projects.<br />
3.3. Data and Time-Frame<br />
The study utilizes 2009 data, as the last available data for comparisons. Thereby, it will benefit the data<br />
and comparable key performance indica<strong>to</strong>rs (KPIs) of Arab <strong>Microfinance</strong> Network (SANABLE) and<br />
MixMarket international published information.<br />
4.4. The Context and Population of the Study<br />
The study, <strong>to</strong> achieve its objectives, will comparably analyze the financial performance of eight<br />
<strong>Jordan</strong>ian MFIs utilizing seven main financial return KPIs and, six main liquidity and risk KPIs<br />
compared <strong>to</strong> 15 outreach KPIs that are accredited and published by the Arab <strong>Microfinance</strong> Newsletter<br />
(SANABLE) and MixMarket. However, due <strong>to</strong> the fact that <strong>Jordan</strong>’s MFIs are not legally <strong>to</strong>lerated <strong>to</strong><br />
have deposits, the study utilized eight outreach KPIs out of the 15 mentioned. Thereby, in <strong>to</strong>tal, the<br />
study comparably analyzes 21 financial KPIs.<br />
4. The Study Findings<br />
4.1. An Overview of <strong>Microfinance</strong> in the World<br />
In the world, there are 1885 specialized MFIs, with a portfolio of 64.8 b. US $ by the end of 2009, and<br />
roughly 90.8 m. active borrowers with an average loan balance of $ 523 per<br />
borrower(www.themix.org/mfi/country/<strong>Jordan</strong>&www.mixmarket.org).<br />
Among Arab population of 370 m., 26% of which are estimated <strong>to</strong> be living on less than US $ 2<br />
per day. However, microfinance in the Arab region is continued <strong>to</strong> be highly profitable in 2009, it<br />
recorded the highest median return on assets ROA at 3.4%(SANABEL & Mix, 2010, P6).<br />
Arab <strong>Microfinance</strong> sec<strong>to</strong>r is the second youngest microfinance sec<strong>to</strong>r in the world. It continues<br />
<strong>to</strong> grow with high rates; 10 Arab states have 55 specialized MFIs, including Iraq. In general, Arab<br />
<strong>Microfinance</strong> is characterized by its mature MFIs; using two lending methodologies, namely solidarity
124 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
group lending and individual lending; the MFIs are not regulated as financial intermediaries by the<br />
financial authorities; they, recently, began <strong>to</strong> offer a variety of additional loan products including<br />
consumer loans; many of them offers micro- insurance, especially in <strong>Jordan</strong> and Egypt; and some<br />
experiencing mobile credit units (SANABEL & Mix, 2010, Op., Cit., PP 1-5).<br />
Active borrowers in the Arab world constitute only 2.7% of the worlds’ active borrowers, and<br />
2.9% of its number of specialized MFIs, and also constitute 1.8% of the worlds’ loan portfolio, as has<br />
depicted from Table No. (1).<br />
Although, Arab MFIs are growing and tried <strong>to</strong> regulate microfinance sec<strong>to</strong>r, most Arab MFIs<br />
are unable <strong>to</strong> offer saving services, also another barrier is the lack of establishing a Credit Bureaus yet<br />
(SANABEL & Mix, 2010, Op., Cit., P6).<br />
The study conducted its analysis through two stages; at first through KPIs comparison of <strong>Jordan</strong><br />
among Arab countries’ MFIs, and secondly at the stage of <strong>Jordan</strong>ian eight specialized’ MFIs.<br />
4.2. <strong>Microfinance</strong> at the Arab Level<br />
Measuring and analyzing the comparative performance of <strong>Microfinance</strong> in the Arab world<br />
report,identified the outreach indica<strong>to</strong>rs in 15 key performance indica<strong>to</strong>rs (KPIs), of which seven KPIs<br />
are considering deposit figures <strong>to</strong> MFIs, and due <strong>to</strong> the fact that <strong>Jordan</strong>ian MFIs have no deposit<br />
services, the study only considers eight KPIs <strong>to</strong> represent the outreach performance. The report also<br />
determines eight macro-financial performance KPIs <strong>to</strong> be considered as a match of the breadth of<br />
microcredit outreach (Mix, SANABEL and, CGAP, 2010, P 16).<br />
In Arab countries, demand on microloans is still high; an outreach gap was estimated <strong>to</strong> 53 m.<br />
borrowers who are eligible <strong>to</strong> access microfinance in 2008. However, in <strong>Jordan</strong> it is estimated <strong>to</strong> be<br />
205,444 borrowers and of 167.2 m. $ portfolio gap (Seep, Citi foundation, and SANABEL, P 9).<br />
Access <strong>to</strong> finance is hindered, in some Arab countries, by the denomination of public sec<strong>to</strong>r<br />
banks or funds that directs credit <strong>to</strong> certain, also many specialized MFIs are perceived <strong>to</strong> finance less<br />
risky clients and high return business. In addition <strong>to</strong> other obstacles such as: contract enforcement;<br />
property registration; poor inves<strong>to</strong>r rights protection; bureaucratic procedures; and high minimum<br />
capital requirement for business start-ups. Therefore, <strong>Microfinance</strong> sec<strong>to</strong>r in the Arab region remains<br />
shallow with low levels of access <strong>to</strong> finance (Seep, Citi foundation, and SANABEL, Op., cit., P 12).<br />
At the first phase, the comparative data of the KPIs are crystallized in the following Tables No.<br />
(2,3 & 4).Although <strong>Jordan</strong> comes <strong>to</strong> rate the third among 10 Arab countries in terms of the number of<br />
institutions; active borrowers; and loan portfolio size in 2009, it actually comes as the first Arab<br />
country when compared its loan portfolio per capita, and rating the second when comparing its active<br />
borrowers <strong>to</strong> inhabitants, as can be driven from Table No. (1).<br />
<strong>Jordan</strong>’s borrowers per capita are amounted <strong>to</strong> 2.7%; which is more than doubled of the Arab<br />
figure of only 1% vs. <strong>to</strong> 1.6% <strong>to</strong> world average.On the other hand, <strong>Jordan</strong> achieved high rank in the<br />
allocation of microfinance money <strong>to</strong> inhabitants; <strong>Jordan</strong> per capita loan portfolio was amounted <strong>to</strong> 22.8<br />
$ in 2009. Whereas, loan portfolio per capita was amounted <strong>to</strong> 11.4 $ <strong>to</strong> the world, and only 4.6 $ <strong>to</strong><br />
the Arabs, on the average.<br />
Table No. 1: Active Borrowers and Loan Portfolio in Arab Countries in 2009<br />
Country No. of MFIs<br />
No. of Active<br />
Borrowers<br />
Loan<br />
Portfolio<br />
(LP) US $<br />
Borrowers/<br />
Pop %<br />
LP/Cap US $<br />
Average<br />
Loan<br />
Balance US<br />
$<br />
Egypt (76) 13 1,100,541 216,688,450 1.5 2.9 197<br />
Morocco (31.7) 10 915,839 609,943,100 2.9 19.2 666<br />
<strong>Jordan</strong>(5.9) 8 159,081 134,262,829 2.7 22.8 844<br />
Tunisia (10.7) 1 123,041 41,355,997 1.1 3.9 336<br />
Palestine (5.2) 8 34,057 89,202,509 0.8 17.2 2619<br />
Lebanon (4.2) 3 31,671 29,274,281 0.8 7.0 924
125 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
Table No. 1: Active Borrowers and Loan Portfolio in Arab Countries in 2009 - continued<br />
Yemen (24) 6 28,714 3,593,486 0.1 15.0 125<br />
Syria (21.9) 2 21,327 18,181,266 0.1 1.0 852<br />
Sudan (42) 3 20,155 3,867,094 0.05 9.2 192<br />
Iraq (31) 1 13,161 21,911,871 0.04 70.7 1665<br />
Total Arab (252.6) 55 2,447,587 1,168,280,883 1.0 4.6 477<br />
The World (5670) 1885 90,800,000<br />
64,800,000,00<br />
1.6 11.4 523<br />
Arab % 2.9 2.7 1.8<br />
Source: 1. SANABEL and Mix, Arab <strong>Microfinance</strong> Analysis & Benchmarking Report 2010.<br />
2. www.themix.org/mfi/country/<strong>Jordan</strong>&www.mixmarket.org.<br />
4.1.1. Outreach KPIs<br />
<strong>Jordan</strong> exercising well achievement for all outreach indica<strong>to</strong>rs; it always exercising above Arab<br />
industry norm’ index for the 8 th outreach KPIs, and rounds about the double against Arab norms for the<br />
gross loan portfolio and; average outstanding balance indica<strong>to</strong>rs of an index of 1.6, and more than half<br />
of that norm for average balance per borrower, and average outstanding balance <strong>to</strong> GNI per capita of<br />
an index of 1.3 plus.<br />
On the other hand, <strong>Jordan</strong> exercising quarter more than Arab norm for active borrowers, female<br />
percentage, average balance per borrower <strong>to</strong> GNI per capita indica<strong>to</strong>rs, of roughly an index of 1.3.<br />
Thereby, we can conclude from outreach indica<strong>to</strong>rs that <strong>Jordan</strong> was rounded between the second and<br />
third rank among Arab countries as driven from Table No. (2).<br />
Female Borrowers: <strong>Jordan</strong> became in<strong>to</strong> the second among Arab MFIs for female lending, 79%<br />
of <strong>to</strong>tal number of loans are streamlined <strong>to</strong> females,comparing <strong>to</strong> an Arab average norm of 63.8% <strong>to</strong><br />
females, and having an index of 1.24.<br />
Average Balance per Borrower: <strong>Jordan</strong> average loan portfolio <strong>to</strong> the active borrower is<br />
amounted <strong>to</strong> 844 $, and rated as the second among Arabs, <strong>Jordan</strong>’s indexed <strong>to</strong> 1.6 and Lebanon <strong>to</strong> 1.8<br />
comparing <strong>to</strong> average balance of 527$ as Arab average. Also reference <strong>to</strong> the average balance per<br />
borrower <strong>to</strong> per capita GNI, <strong>Jordan</strong> and Morocco ranked at the second constituting an index of 1.3<br />
versus 7.0 <strong>to</strong> Palestine.<br />
Average Outstanding Balance AOB: <strong>Jordan</strong> ranked the third among Arabs’ gross loan<br />
portfolio <strong>to</strong> loans outstanding, it amounted <strong>to</strong> 8387 $ with an index of 1.6 compared <strong>to</strong> 5266$ <strong>to</strong> the<br />
Arabs average. Palestine and morocco are higher than <strong>Jordan</strong> of an index of 4.6 and 2.1 respectively.<br />
On the other hand, <strong>Jordan</strong> rated the third for the AOB per capita indica<strong>to</strong>r, having an index of 1.3<br />
compared <strong>to</strong> 6.5 and 2.2 <strong>to</strong> Palestine and Egypt respectively.<br />
Table No. 2: <strong>Microfinance</strong> Outreach Key Performance Indica<strong>to</strong>rs KPIs in 2009<br />
Outreach KPI Tunis Morocco Egypt <strong>Jordan</strong> Palestine Yemen Lebanon<br />
Industry<br />
Norm<br />
No. of Active Borrowers 123,041 915,839<br />
1,100,5<br />
41<br />
159,081 34,057 28,714 31,671 129,507<br />
% of Females 63 56.6 69.9 79 54.8 96 41.4 63.8<br />
Female % Index ~ 0.99 0.89 1.10 1.24 0.86 1.51 0.65 1.00<br />
No. of Loans Outstanding 10219 55693 38873 16009 3669 3564 13244 12958<br />
Gross Loan Portfolio<br />
m.US $<br />
41.356 609.943 216.688 136.988 89.203 3.593 29.274 68.234<br />
Average Balance per<br />
Borrower (ABB) $ *<br />
336 666 197 844 2619 125 924 527<br />
ABB Index ~ 0.6 1.3 0.4 1.6 5.0 0.2 1.8 1.0<br />
ABB / GNI per capita %<br />
*<br />
8.3 23.4 8.0 22.4 124.4 11.3 10.9 17.7<br />
ABB / GNI per capita<br />
Index ~<br />
0.5 1.3 0.5 1.3 7.0 0.6 0.6 1.0<br />
0
126 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
Table No. 2: <strong>Microfinance</strong> Outreach Key Performance Indica<strong>to</strong>rs KPIs in 2009 - continued<br />
Average Outstanding<br />
Balance (AOB) $ *<br />
4047 10952 5574 8387 24312 1008 2210 5266<br />
Average Outstanding<br />
Balance (AOB) Index ~<br />
0.8 2.1 1.1 1.6 4.6 0.2 0.4 1.0<br />
AOB/GNI per capita % * 99 385 228 223 1155 91 26 176.4<br />
AOB/GNI per capita<br />
Index ~<br />
0.6 2.2 1.3 1.3 6.5 0.5 0.1 1.0<br />
GNP per Capita 4070 2848 2450 3766 2105 1108 8467 2985<br />
GNP per Capita Index ~ 1.4 0.95 0.82 1.26 0.71 0.37 2.84 1.00<br />
^ ~<br />
An Industry Norm is the Geometric Average of the Indica<strong>to</strong>rs. * Calculated by the researchers. Calculatedcomparing <strong>to</strong><br />
the Industry Norm.<br />
Source: SANABEL & Mix, 2010 Arab <strong>Microfinance</strong> Analysis & Benchmarking Report.<br />
4.2.2. <strong>Financial</strong> Performance & Revenue Indica<strong>to</strong>rs<br />
The financial performances of the Arab KPIs are drawn by Table No. 3 as follows:<br />
Return on Assets ROA: <strong>Jordan</strong> MFIs’ROA is 7% compared <strong>to</strong> Arabs norm of 2.1%, only<br />
Egypt MFIs are higher, and the lowest country is Morocco of 0.2%. Also, for Return on Equity ROE,<br />
<strong>Jordan</strong> rated the third <strong>to</strong>exercise 14.7%after Yemen and, Egypt of 32.3% and 21.4% respectively.<br />
Operational Self-Sufficiency: <strong>Financial</strong> revenue <strong>to</strong> financial expenses and losses on loans is<br />
shown <strong>to</strong> be highest among Arab countries for Egypt MFIs; it achieved 168.2% followed by Lebanon<br />
and <strong>Jordan</strong> of a rate of 134.8% and 133.3% respectively. Thereby, the <strong>Financial</strong> Self-Sufficiencyof<br />
<strong>Jordan</strong> MFIs is shown <strong>to</strong> be in the middle among Arab countries.<br />
<strong>Financial</strong> Revenue / Assets: Yemen experienced the highest rate of 29.8%, and <strong>Jordan</strong> came at<br />
the second rate <strong>to</strong> achieve 25.7%, and the lowest is Palestine MFIs among Arabs.<br />
Profit Margin:<strong>Jordan</strong> ranked the third among Arabs; its net operating income <strong>to</strong> financial<br />
revenue was amounted <strong>to</strong> 25.1%. Whereas, Egypt was the highest, its profit matches 41%, followed by<br />
Lebanon of 25.8%. On the contrary, Morocco exercised a loss of 7.4%.<br />
Finally, Real Yield on Gross Loan Portfolio: yield on gross portfolio excluding Inflation rate<br />
<strong>to</strong>one bar plus Inflation rate is shown <strong>to</strong> be the highest for <strong>Jordan</strong>ian MFIs, it amounts <strong>to</strong> 36.2%,<br />
followed by Yemen and Lebanon of 31% and 28.3% respectively.<br />
Table No. 3: <strong>Microfinance</strong> <strong>Financial</strong> Returns Key Performance Indica<strong>to</strong>rs KPIs in 2009<br />
<strong>Financial</strong> KPI<br />
(Returns)<br />
Return<br />
on Assets<br />
Return on<br />
Equity<br />
Operation<br />
al Self<br />
Sufficienc<br />
y<br />
<strong>Financial</strong><br />
Self<br />
Sufficienc<br />
y<br />
<strong>Financial</strong><br />
Revenue /<br />
Assets<br />
Profit<br />
Margin<br />
Real Yield<br />
on Gross<br />
Loan<br />
Portfolio<br />
Tunis 1.5% 7.3% 108.8% 100.0% 23.1% 8.3% 21.3%<br />
Morocco 0.2% 0.5% 100.9% 93.5% 20.4% -7.4% 27.4%<br />
Egypt 8.0% 21.4% 168.2% 168.2% 22.0% 41.0% 16.9%<br />
<strong>Jordan</strong> 7.0% 14.7% 133.3% 133.3% 25.7% 25.0% 36.2%<br />
Palestine 1.6% 4.1% 125.4% 112.2% 14.5% 16.5% 11.4%<br />
Yemen 2.1% 32.3% 107.3% 107.3% 29.8% 6.7% 31.1%<br />
Lebanon 3.4% 10.9% 134.8% 134.8% 17.7% 25.8% 28.3%<br />
Arab Industry Norm<br />
2.12% 7.73% 123.83% 119.11% 21.37% 16.55% 23.16%<br />
^<br />
Source: 1) SANABEL & Mix, 2010 Arab <strong>Microfinance</strong> Analysis & Benchmarking Report, 2) Mixmarket.org.<br />
^ Industry Norm is mainly calculated as the Geometric Average due <strong>to</strong> a wide dispersion of KPIs, but for the cases of zero<br />
or minus figures, an Average (Mean) is utilized.<br />
4.2.3. Risk& Liquidity Indica<strong>to</strong>rs<br />
Portfolio at Risk (PAR): For the indica<strong>to</strong>r of theoutstanding portfolio overdue more than 30& 90 days<br />
plus renegotiated portfolio <strong>to</strong> loan portfolio, <strong>Jordan</strong> ranked the third best among the Arab MFIs, it’s
127 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
PAR is amounted <strong>to</strong> 1% - 1.3%. Yemen and Egypt MFIs are in less risk, and the most risky MFIs are<br />
Morocco and Palestine, as can be driven from Table No. 4.<br />
Write-off Ratio: Yemenand Egypt MFIs are experienced the lowest value of loans written–off<br />
<strong>to</strong> average loan portfolio among Arabs, and <strong>Jordan</strong> and Tunis came at the third rank among Arab MFIs.<br />
Also, for the Loan Loss Rate; which is the write-offs excluding loans recovered <strong>to</strong> loan portfolio,<br />
Yemen, Palestineand Egypt MFIs are experienced the lowest value, then <strong>Jordan</strong> came <strong>to</strong> be the fourth<br />
among Arabs.<br />
Risk Coverage:<strong>Jordan</strong> is experiencing the first country for the impairment loss allowance <strong>to</strong><br />
PAR more than 30 days, it was amounted <strong>to</strong> 195.9%, then Egypt followed by 153.5%, and Yemen for<br />
105%.<br />
Finally, Non-Earning Liquid Assets <strong>to</strong> Total Assets:the cash at banks <strong>to</strong> <strong>to</strong>tal assets is shown<br />
<strong>to</strong> be the highest <strong>to</strong> Egypt’s MFIs of 31.2%, and Yemen of 20.7%. Unfortunately, <strong>Jordan</strong> came at the<br />
lowest rank among Arabs of 7.9%.<br />
Table No. 4: <strong>Microfinance</strong> <strong>Financial</strong> Risks' Key Performance Indica<strong>to</strong>rs KPIs in 2009<br />
Risk & Liquidity KPIs<br />
Portfolio @<br />
Risk >30 Days<br />
Portfolio @<br />
Risk >90 Days<br />
Write-Off<br />
Ratio<br />
Loan Loss<br />
Rate<br />
Risk<br />
Coverage<br />
Non-Earning<br />
Liquid<br />
Assets/ Total<br />
Assets<br />
Tunis 4.7% 2.9% 0.6% 0.3% 79.6% 13.5%<br />
Morocco 6.4% 4.5% 7.3% 6.6% 59.9% 16.5%<br />
Egypt 1.2% 0.8% 0.0% 0.0% 153.5% 31.2%<br />
<strong>Jordan</strong> 1.3% 1.0% 0.6% 0.6% 195.9% 7.9%<br />
Palestine 7.5% 4.4% 0.7% 0.0% 56.2% 12.1%<br />
Yemen 0.9% 0.3% 0.0% 0.0% 105.1% 20.7%<br />
Lebanon 2.3% 0.9% 0.7% 0.7% 61.1% 13.4%<br />
Arab Industry Norm ^ 2.56 1.43 1.41 1.17 91.02 15.16<br />
Source: 1) SANABEL & Mix, 2010 Arab <strong>Microfinance</strong> Analysis & Benchmarking Report, 2) Mixmarket.org.<br />
^ Industry Norm is mainly calculated as the Geometric Average due <strong>to</strong> a wide dispersion of KPIs, but for the cases of zero<br />
or minus figures, an Average (Mean) is utilized.<br />
4.3. <strong>Microfinance</strong> at <strong>Jordan</strong> Level<br />
In general, the financial viability of <strong>Jordan</strong>’s MFIs enables them <strong>to</strong> widening their outreach activities.<br />
As can be driven from Table No. 5, the eight <strong>Jordan</strong>ian MFIs have 85 offices throughout the country<br />
with 854 personnel; this means 71 employees, on the average, are serving each governorate in <strong>Jordan</strong>,<br />
noting that <strong>Jordan</strong> has 12 governorates; this KPI indicates <strong>to</strong> MFIs outreach. As mentioned earlier,<br />
<strong>Jordan</strong> MFIs are not <strong>to</strong>lerated <strong>to</strong> collect savings either from their clients (borrowers), or from others.<br />
Thereby, deposits are zero <strong>to</strong> all MFIs.<br />
Development & Employment Fund DEF is shown <strong>to</strong> have around half of the microfinance<br />
market in <strong>Jordan</strong>; it has 42.5% of the MFIs <strong>to</strong>tal assets, 59.6% of <strong>to</strong>tal equities, and 43.6% of gross<br />
loans portfolio. On the other hand, its liabilities are minimal; <strong>to</strong>tal borrowing is amounted <strong>to</strong> 11.4% of<br />
the market, debt/equity is 0.12 and, <strong>to</strong>tal write off is zero; this is due <strong>to</strong> the government support and<br />
donations, and also its Law No. 33 of the year 1992 that protects its funds from write offs; due <strong>to</strong> the<br />
Law of State Funds applied. Thereby, DEF has the capability <strong>to</strong> extend its operations all over the<br />
remote areas and poverty enclaves; it can and should maximize its outreach <strong>to</strong> combat poverty and<br />
unemployment. Especially, it’s cleared that its impairment loss allowances come in the middle of<br />
<strong>Jordan</strong> MFIs, and also its borrowings is the least among them, in comparison <strong>to</strong> AlWatani bank and<br />
FINCA’s borrowings of 51.4% and 88.1% of their <strong>to</strong>tal assets respectively.
128 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
Table No. 5: <strong>Jordan</strong>’s <strong>Microfinance</strong> <strong>Financial</strong> Key Performance Indica<strong>to</strong>rs KPs<br />
Table No. (5): <strong>Jordan</strong>'s <strong>Microfinance</strong> <strong>Financial</strong> Key Performance Indica<strong>to</strong>rs KPIs<br />
<strong>Financial</strong> Indica<strong>to</strong>rs KPIs<br />
Development<br />
& Employment<br />
Fund DEF<br />
Al Watani<br />
Bank<br />
Ahlia<br />
<strong>Microfinance</strong><br />
Comp. AMC<br />
FINCA<br />
Middle East<br />
Microfinanc<br />
e Comp.<br />
MEMC<br />
Micro Fund<br />
for Women<br />
MFW<br />
TAMWEELC<br />
OM<br />
UNRWA<br />
Offices 13 10 9 7 13 20 13 — 12.1<br />
Personnel 103 132 73 71 94 206 175 — 122.0<br />
Industry<br />
Norm<br />
Total assets 64,285,458 15,343,013 5,941,435 5,085,486 18,450,131 18,483,549 15,362,696 8,213,675 18,895,680<br />
Total equity 57,388,699 6,964,356 5,213,089 161,972 9,572,269 9,569,782 7,275,339 86,724 12,029,029<br />
Net loan portfolio 56,084,076 13,398,631 3,989,531 3,441,497 17,044,179 16,581,494 13,053,118 6,370,459 16,245,373<br />
Gross loan portfolio 59,751,679 13,646,082 5,132,590 3,626,058 17,484,699 17,100,338 13,218,348 7,028,211 17,123,501<br />
Impairment loss allowance 3,667,603 233,024 648,910 38,870 267,782 518,844 165,230 657,752 774,752<br />
Liabilities and equity 64,285,458 15,343,013 5,941,435 5,085,486 19,216,939 18,483,549 15,362,696 8,213,675 18,991,531<br />
Total liabilities 6,896,759 8,378,656 728,346 4,923,514 9,986,675 8,913,768 8,087,356 8,126,951 7,005,253<br />
Deposits 0 0 0 0 0 0 0 0 -<br />
Total borrowings 4,907,717 7,890,962 610,328 4,480,986 8,754,294 8,182,761 8,041,630 0 5,358,585<br />
Write offs 0 476,027 0 530 1,845 256,720 150,592 — 126,531<br />
Debt <strong>to</strong> equity ratio 0.12 1.2 0.14 30.4 1.04 0.93 1.11 93.71 16.1<br />
Source: www.themix.org/mfi/country/<strong>Jordan</strong>&www.mixmarket.org<br />
4.3.1. Outreach KPIs<br />
<strong>Jordan</strong>ian specialized MFIs are well exercising the microcredit sec<strong>to</strong>r in <strong>Jordan</strong> market. Three groups<br />
of financial indica<strong>to</strong>rs: outreach; returns and; risk KPIs, are clearly shown byTable No. 6 .<br />
Gross Loan Portfolio: <strong>Jordan</strong> MFIs have a <strong>to</strong>tal portfolio of 136.99 m. $ in 2009, of which<br />
Development & Employment Fund DEF has 59.75 m. $, which amounted <strong>to</strong> 43.6% of <strong>to</strong>tal portfolio in<br />
the market. DEF as an independent government entity capitalized that much of money due <strong>to</strong> the<br />
donations and gifts from the government and, gifts from international agencies via government support<br />
<strong>to</strong>o.<br />
Middle East <strong>Microfinance</strong> Company MEMC showed the highest Loans Portfolio <strong>to</strong> Assets<br />
among <strong>Jordan</strong> MFIs, 94.8% of its assets are dedicated <strong>to</strong> loans, DEF and Microfund for Women MFW<br />
were shown very high assets allocated <strong>to</strong> loans for a 93% and 92.5% respectively. Other MFIs:<br />
AlWatani Bank, Ahlia <strong>Microfinance</strong> Company AMC, TAMWEELCOM, and UNRWA were allocated<br />
85.6% - 88.9% of their assets <strong>to</strong> loans. However, FINCA is proven <strong>to</strong> have the lowest allocation of its<br />
assets <strong>to</strong> loans of only 71.3%; this is because the losses incurred due <strong>to</strong> its new establishment in 2007,<br />
thereby it needs more time <strong>to</strong> recover its pre-operating expenses and stabilize in the market.<br />
Number of Active Borrowers: in fact, number of active borrowers for each MFI depends on<br />
the loan duration and the amount of loans dispersed. Although, its nominal figure reflects the MFIs<br />
outreach, the actual indica<strong>to</strong>r that reflects the depth of outreach is by comparing it with loan duration<br />
and borrowers’ extension accumulation of the same loan; many <strong>Jordan</strong>ian MFIs consider relending <strong>to</strong><br />
the same borrower as another active borrower, which makes the big difference. On the average, MFIs<br />
have 21637 active borrowers per each; as driven by the industry norm.<br />
Women Borrowers: <strong>Jordan</strong> MFIs focuses its operations <strong>to</strong> be in favor of females, FINCA,<br />
MFW and TAMWEELCOM are roughly fully lending <strong>to</strong> women 97.6% , 96.5% and 96.2% of their<br />
clients respectively, Alwatani Bank 90%, and the others MEMC by 64.5%, DEF by 58.4%, and AMC<br />
by 48.5% of their lending <strong>to</strong> females.<br />
Loans Outstanding: almost this indica<strong>to</strong>r reflects number of active borrowers for all MFI in<br />
<strong>Jordan</strong> except for MEMC; because it calculates the renewal of a loan as another loan. In general, each<br />
<strong>Jordan</strong>ian MFI had 22070 outstanding loans in 2009, on the average; this means that every employee<br />
supervises 181 loans outstanding in the year.<br />
Average Loan Balance per Borrower: DEF shows <strong>to</strong> be highest for this KPI, this is due <strong>to</strong><br />
thefact that, DEF loan size is much higher than other MFIs, it ranges from 500 $ <strong>to</strong> 20,000 $. Whereas,<br />
most other MFIs loan size rages from 100 $-7000 $, only MEMC and Ahli companies have 20,000 $<br />
loan ceiling; this is why they are rated at the second and third. These facts reflected in the Average
129 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
Loan Balance per Borrower/ GNI per capita, which amounted <strong>to</strong> 78.8%, 52.4% and47.8% <strong>to</strong> DEF,<br />
MEMC and AMC respectively.<br />
Average Outstanding Balance: on the average, average loan outstanding balance is 1130 $ in<br />
2009 for <strong>Jordan</strong> MFIs, DEF is the biggest, then followed by AMC and MEMC for the beforementined<br />
reasons. This figure also reflected the Average Outstanding Balance/GNI per capita, which showed<br />
that, the loans dispersed by MFIs <strong>to</strong> borrowers in <strong>Jordan</strong> are amounted <strong>to</strong> 30% of the per capita<br />
income. In sum, these loans are so small, because they are targeting microenterprises.<br />
4.3.2. Return KPIs<br />
Return on Assets ROA: ROA is shown <strong>to</strong> be high <strong>to</strong> UNRWA, MFW, AlWatani, TAMWEELCOM,<br />
and MEMC, it ranges from 7%-9.4%. However, it’s lower <strong>to</strong> DEF and AMC with 3.1% and 4.1% only.<br />
FINCA was exercised losses. Also, for Return on Equity ROE, DEF and AMC are the lowest and<br />
below the <strong>Jordan</strong>’s average norm. However, UNRWA is <strong>to</strong>o high due <strong>to</strong> its very low equities.<br />
Operational Self-Sufficiency: <strong>Financial</strong> revenue <strong>to</strong> financial expenses and losses on loans is<br />
shown <strong>to</strong> be above the average norm for seven MFIs, DEF is shown <strong>to</strong> be the highest, while FINCA is<br />
the lowest.<br />
<strong>Financial</strong> Revenue / Assets: UNRWA, MFW are proven the highest financial revenue <strong>to</strong><br />
assets and, DEF is performing the lowest ; due <strong>to</strong> its large amount of assets and its less concern of<br />
attaining profits, rather than mobilizing its money <strong>to</strong> cover remote areas. This is also affected the<br />
Profit Margin. DEF is shown the highest profit margin of 39% not because of its net income, but due<br />
<strong>to</strong> its low financial revenue, and its zero cost <strong>to</strong> a large amount of its capital. MEMC is proven <strong>to</strong> be<br />
the highest. Fortunately, all <strong>Jordan</strong>ian MFIs, except AMC and FINCA are above <strong>Jordan</strong>’s industry<br />
norm.<br />
Real Yield on Gross Loan Portfolio: this rate is shown <strong>to</strong> be the highest for UNRWA <strong>to</strong> an<br />
amount of 39.1%, followed by TAMWEELCOM, MFW and FINCA with 39% and 37%, and<br />
AlWatani bank with 35.3%, then AMC and MEMC with 29.7%, and 24.3% respectively. Whereas,<br />
DEF is exercising the lowest rate of 9.3% only.<br />
Table No. 6: <strong>Jordan</strong>’s <strong>Microfinance</strong> <strong>Financial</strong> Key Performance Indica<strong>to</strong>rs KPs<br />
Table No. (6): <strong>Jordan</strong>'s <strong>Microfinance</strong> <strong>Financial</strong> Key Performance Indica<strong>to</strong>rs KPIs<br />
<strong>Financial</strong> Indica<strong>to</strong>rs KPIs<br />
Development<br />
&<br />
Employment<br />
Fund DEF<br />
Al Watani<br />
Bank<br />
Ahlia<br />
Microfinanc<br />
e Comp.<br />
AMC<br />
FINCA<br />
Middle East<br />
Microfinanc<br />
e Comp.<br />
MEMCO<br />
Micro Fund<br />
for<br />
Women<br />
MFW<br />
TAMWEEL<br />
COM<br />
UNRWA<br />
Number of active borrowers 20,133 23,687 2,853 8,832 8,853 48,160 38,941 — 21,637<br />
Percent of women borrowers 58.42% 90.00% 48.51% 97.64% 64.55% 96.45% 96.16% — 0.79<br />
Number of loans outstanding 20,133 23,687 2,853 8,832 11,885 48,160 38,941 — 22,070<br />
Gross loan portfolio in m.$ 59.752 13.646<br />
Outreach KPIs<br />
Gross loan portfolio <strong>to</strong> <strong>to</strong>tal assets 92.95% 88.94% 86.39% 71.30% 94.77% 92.52% 86.04% 85.57% 0.9<br />
Average loan balance per borrower 2,968 576 1,799 411 1,975 355 339 — 1,203<br />
Average loan balance per borrower / GNI per capita 78.80% 15.30% 47.77% 10.90% 52.44% 8.92% 8.53% — 0.32<br />
Average outstanding balance 2,968 576 1,799 411 1,471 355 339 — 1,131<br />
Average outstanding balance / GNI per capita 78.80% 15.30% 47.77% 10.90% 39.06% 8.92% 8.53% — 0.30<br />
Return KPIs<br />
Return on assets 3.08% 7.72% 4.08% -11.43% 7.05% 8.97% 7.53% 9.41% 0.05<br />
Return on equity 3.38% 19.20% 4.78% -184.63% 14.16% 17.69% 18.45% 9855.20% 12.19<br />
Operational self sufficiency 164.37% 132.65% 119.70% 69.25% 147.33% 133.89% 129.54% 134.12% 1.29<br />
<strong>Financial</strong> revenue/ assets 7.87% 31.36% 24.78% 25.73% 21.94% 35.46% 33.04% 36.98% 0.27<br />
Profit margin 39.16% 24.61% 16.46% -44.41% 32.13% 25.31% 22.80% 25.44% 0.18<br />
Yield on gross portfolio (real) 9.26% 35.26% 29.68% 37.14% 24.33% 37.17% 39.17% 43.06% 0.32<br />
Liquidity & Risk KPis<br />
Portfolio at risk > 30 days 2.27% 1.49% 15.95% 0.54% 0.41% 1.11% 0.65% — 0.03<br />
Portfolio at risk > 90 days 2.27% 1.37% 14.58% 0.49% 0.33% 0.61% 0.26% — 0.03<br />
Write-off ratio — 3.29% — 0.02% 0.01% 1.58% 1.08% — 0.01<br />
Loan loss rate — 3.20% -0.33% 0.02% -0.24% 1.58% 1.08% -1.12% 0.01<br />
Risk coverage 270.28% 114.91% 79.28% 199.75% 374.93% 274.53% 191.98% — 2.15<br />
Non-earning liquid assets as a % of <strong>to</strong>tal assets 2.95% 7.06% 29.07% 0.02% 9.04% 5.77% 7.10% 18.33% 0.10<br />
Source: www.themix.org/mfi/country/<strong>Jordan</strong>&www.mixmarket.org<br />
5.133<br />
3.626<br />
17.485<br />
17.100<br />
13.218<br />
7.028<br />
Industry<br />
Norm<br />
17.124
130 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
4.3.3. Risk & Liquidity Indica<strong>to</strong>rs<br />
Portfolio at Risk (PAR): theoutstanding portfolio overdue for more than 30 & 90 days is proven <strong>to</strong> be<br />
<strong>to</strong>o small for almost all <strong>Jordan</strong> MFIs, the industry average amounts <strong>to</strong> 3%, only AMC is shown <strong>to</strong> be<br />
around 15%; this is due <strong>to</strong> the fact that its operations are more likely similar <strong>to</strong> banks, it’s actually<br />
established and operating under the privilege of <strong>Jordan</strong> Ahli Bank, whereas, all other agencies, except<br />
DEF, are non-profit MFIs and have their own management board.<br />
Write-off Ratio: as mentioned before, DEF has no write offs. Also, AMC’s write off is zero,<br />
and FINCA and MEMC are approaching zero. AlWatani Bank is shown <strong>to</strong> be the highest write off <strong>to</strong><br />
match 3.2%. On the other hand,Loan Loss Rate; which is the write-offs excluding loans recovered <strong>to</strong><br />
loan portfolio, is proving <strong>to</strong> be thepostive trend for <strong>Jordan</strong>s’ MFIs; its industry average is 1%.<br />
Risk Coverage: MEMC is shown <strong>to</strong> be the best among <strong>Jordan</strong> MFIs that covered risk for a rate<br />
of 374.9%, followed by MFW, and DEF of 274.5% and 270.3% respectively. AMC is exercised the<br />
lowest risk coverage of only 79.3% versus the industry norm of 215%.<br />
Finally,Non-Earning Liquid Assets <strong>to</strong> Total Assets: this indica<strong>to</strong>r shows a wide dispersion<br />
between <strong>Jordan</strong> MFIs, due <strong>to</strong> the variety of MFIs cash at banks relative <strong>to</strong> their assets shown. On the<br />
average, the industry norm is 10%, while it was 29% for AMC and 18.3% for UNRWA, and decrease<br />
<strong>to</strong> 3% for DEF and 5-9% for the other MFIs, except FINCA which exercised down rate <strong>to</strong> 0.02% only.<br />
In sum, this reflects the MFI desire <strong>to</strong> have the least reserved liquid assets; non-operating money or<br />
assets, and <strong>to</strong> fully exploit their assets, especially cash assets.<br />
5. Conclusions and Recommendations<br />
5.1. The Main Conclusions<br />
The study has proved that <strong>Jordan</strong>ian MFIs have ranked at the 2 nd. best ROA and ROE among Arab<br />
MFIs, the 3 rd. operational and financial self-sufficiency, the 2 nd. financial revenue <strong>to</strong> assets, the 2 nd. in<br />
profit margin, and rated the 1 st. in yield on real gross loan portfolio.<br />
On the other hand, <strong>Jordan</strong> MFIs were in the middle of the seven Arab countries in comparison<br />
<strong>to</strong> risk & liquidity indica<strong>to</strong>rs. Also, these MFIs proved <strong>to</strong> be above Arab industry norm <strong>to</strong> all outreach<br />
KPIs; which reflects the depth of their activities.<br />
When comparing outreach KPIs for <strong>Jordan</strong>’s eight MFIs industry norm against Arab norms, we<br />
conclude that, <strong>Jordan</strong> MFIs net activities were shown <strong>to</strong> be better <strong>to</strong> almost all outreach KPIs, this<br />
proves that <strong>Jordan</strong> had widening its Microcredit professional activities, and its MFIs set a platform <strong>to</strong><br />
prosper <strong>Microfinance</strong> sec<strong>to</strong>r in the country. This fact can be drawn also by comparing active<br />
borrowers, percentage of females’ loans, loans outstanding, and loans’ portfolio <strong>to</strong> population; the per<br />
capita <strong>Microfinance</strong> achievements, <strong>Jordan</strong> is seen <strong>to</strong> be the first Arab country thereof.<br />
5.2. Recommendations<br />
Due <strong>to</strong> the abovementioned facts, <strong>Jordan</strong> MFIs have the financial viability <strong>to</strong> maximize their<br />
Microcredit outreach <strong>to</strong> penetrate more in the <strong>Jordan</strong>ian financialmarket, especially more focus on<br />
serving in the poor and remote areas. Therefore, promoting <strong>Jordan</strong> MFIs will nourish Microcredit<br />
sec<strong>to</strong>r, mainly when compiling up with international best practices. Thereby, the study recommends the<br />
followings:<br />
1. Releasing deposit gathering <strong>to</strong> MFIs in order <strong>to</strong> widen its sources of capital in one side<br />
and, <strong>to</strong> have complementary interests with their clients on the other side. The Central<br />
Bank of <strong>Jordan</strong> should facilitate it under itscontroland follow-up.<br />
2. Establishing a Credit Bureau and facilitating the transparent mainstream of credit<br />
information.<br />
3. The government of <strong>Jordan</strong> should promote the MFIs <strong>to</strong> focus their activities on remote<br />
areas and poverty enclaves, and maximize their outreach.
131 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
4. The MFIs should, by themselves, focus their activities on establishing start-up projects<br />
as income-generating projects <strong>to</strong> serve as an active <strong>to</strong>ol <strong>to</strong> combat poverty and<br />
unemployment.<br />
5. MFIs in <strong>Jordan</strong> have the capability <strong>to</strong> be a private-led sec<strong>to</strong>r not <strong>to</strong> continue working as<br />
non-profit agencies. Therefore, an exit strategy should be drawn <strong>to</strong> transfer <strong>to</strong> private<br />
sec<strong>to</strong>r agencies.<br />
References<br />
1] Al A<strong>to</strong>um, Radi, <strong>Microfinance</strong> Inthe MENA Countries: A position paper on Partnership for<br />
Development, prepared <strong>to</strong> MENA - Net Conference, Cairo - Egypt Dec. 13-17, 1998.<br />
2] Brandsma, Judith, <strong>Microfinance</strong> sec<strong>to</strong>r in <strong>Jordan</strong>; World bank, NY, USA, 2001.<br />
3] Planet Finance; National Impact & Market Study of <strong>Microfinance</strong> in <strong>Jordan</strong>, Ministry of<br />
Planning & International Cooperation and, GroupeAgenceFrancise de Development. Oct. 2007.<br />
4] World Bank, Social Productivity; from Concept <strong>to</strong> Action, NY, 1998.<br />
5] Brandsma, Judith and Bourjorjee, Deena, <strong>Microfinance</strong> in the Arab States; Building Inclusive<br />
<strong>Financial</strong> Sec<strong>to</strong>rs, United Nations Capital Development Fund (UNCDF), NY, USA, 2004.<br />
6] SANABEL and Mix, Arab <strong>Microfinance</strong> Analysis & Benchmarking Report 2010.<br />
7] www.themix.org/mfi/country/<strong>Jordan</strong>&www.mixmarket.org.<br />
8] Planet Finance; National Impact & Market Study of <strong>Microfinance</strong> in <strong>Jordan</strong>, Ministry of<br />
Planning & International Cooperation and the Agence Française de Développement, Oct. 2007.<br />
9] Seep, Citi Foundation and, SANABEL, Arab <strong>Microfinance</strong> Regional Report: An Industry<br />
Update, (April 2009 and Dec. 2010).<br />
10] Economic & Social Council, Micofinance in <strong>Jordan</strong>, Policy Paper, 2011.<br />
11] www.microfinancegateway.com.<br />
Appendix: The KPIs’ Utilized by this Study<br />
Outreach Indica<strong>to</strong>rs<br />
1. Active Borrowers: No. of borrowers with loans outstanding, adjusted for standardize<br />
write-offs.<br />
2. Percent of Female Borrowers: No. of active women borrowers/ Adjusted No. of active<br />
borrowers.<br />
3. Total Loans Outstanding: No. of outstanding loans adjusted for standardized writeoffs.<br />
4. Gross Loan Portfolio: Gross loan portfolio adjusted for standardized write-offs.<br />
5. Average Balance per Borrower: Gross loan portfolio, adjusted / No. of active<br />
borrowers, adjusted.<br />
6. AverageBalance per Borrower/GNI per Capita: Average loan balance per borrower /<br />
GNP per capita.<br />
7. Average Outstanding Balance: Adjusted gross loan portfolio/ Adjusted no. of loans<br />
outstanding.<br />
8. Average Outstanding Balance per Capita: Adjusted average outstanding balance/<br />
GNI per capita.<br />
Overall <strong>Financial</strong> Performance & Revenue Indica<strong>to</strong>rs<br />
1. Return on Assets: Adjusted net operating income-Taxes /Adjusted average <strong>to</strong>tal assets.<br />
2. Return on Equity: Adjusted net operating income-Taxes /Adjusted average <strong>to</strong>tal<br />
equity.
132 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011)<br />
3. Operational Self-Sufficiency: <strong>Financial</strong> revenue /(<strong>Financial</strong> expense + Impairment<br />
losses on loans + Operating expenses).<br />
4. <strong>Financial</strong> Self-Sufficiency: <strong>Financial</strong> revenue / Adjusted (<strong>Financial</strong> expense +<br />
Impairment losses on loans + Operating expenses).<br />
5. <strong>Financial</strong> Revenue / Assets: Adjusted financial revenue / Adjusted average <strong>to</strong>tal assets.<br />
6. Profit Margin: Adjusted net operating income / Adjusted financial revenue.<br />
7. Yield on Gross Loan Portfolio (Real): Adjusted yield on gross portfolio (nominal) –<br />
Inflation rate / (1 + Inflation rate).<br />
Risk & Liquidity Indica<strong>to</strong>rs<br />
1. Portfolio at Risk >30 days (PAR): Outstanding balance, portfolio overdue > 30 days +<br />
renegotiated portfolio / Adjusted gross loan portfolio.<br />
2. Portfolio at Risk > 90 days: Outstanding balance, portfolio overdue > 90 days +<br />
renegotiated portfolio / Adjusted gross loan portfolio.<br />
3. Write-off Ratio: Adjusted value of loans written–off / Adjusted average gross loan<br />
portfolio.<br />
4. Loan Loss Rate: (Adjusted write-offs – Value of loans recovered) / Adjusted average<br />
gross loan portfolio.<br />
5. Risk Coverage: Adjusted impairment loss allowance / PAR > 30 days.<br />
6. Non-Earning Liquid Assets <strong>to</strong> Total Assets: Adjusted cash at banks / Adjusted <strong>to</strong>tal<br />
assets.