Jordan Microfinance Institutions' Financial Viability to ... - EuroJournals

More documents

Recommendations

Info

122 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011) experience of Credit Schemes at the local communities in cooperation with grass root voluntary societies (Al Atoom, 1998, P 8). In fact, the financial credit in Jordan is initiated by the Outman Bank during the Outman rule on Arab countries that focused its operations on agricultural credits; which was lately renamed the Agricultural Credit Corporation (ACC) in 1959. Aftermath, Arab Bank established its branch in 1930, followed by UNRWA in 1957, and Industrial Development Bank in 1964, and many other agencies were followed (Ibid, P 8). In 1996, the World Bank published the “Social Productivity from Concept to Action” report that has proposed the initiation of the four components topromote Jordan’s social productivity, of which Microfinance was one of the four major components to work on. Thereby, five microfinance companies were established; one private entity and four non-profit entities(World Bank, 1998, P23). 2. Literature and of Related Studies’ Review 2.1. The Theme of Microfinance: A Theoretical Perspective Microfinance is a concept that postulates the credit to micro and small business; it also includes savings; cash transfers; and insurance to poor and low-income people. Strictly speaking, it comes into a wide concern for the developing countries after continual increase of poverty and unemployment, and lack of income equality. In order to be more effective and maintain community’s local development, microfinance institutions (MFIs) should provide both financial and non-financial services. Non-financial services envelop a well define of the target groups and target areas; target groups are the poor and/ or the unemployed, and the target areas are the areas that have the potential to establish a micro and small projects according to the local community needs’ assessment. Therefore, non-financial services envelop: business awareness, market surveys, training target groups on “how to start their own business”, providing feasibility studies, assisting in establishing their projects, providing them with business counseling, and assisting in marketing activities, consequently. The Consultative Group to Assist the Poor (CGAP) highlights eleven principles that are essential for building financial systems for the poor, of which the most important are: their need of a variety of financial products; ability to raise income; build their assets; integrate country’s mainstream financial systems; reach large number of poor people; can attract domestic deposits to be recycled into loans; governments have to enable others to develop financial services, and not to provide them directly; and Microfinance works best when it measures its performance, also when MFI produces accurate data on financial performance, as well as social performance (Brandsma&Bourjorjee, 2004, P 9). 2.2. Review of Microfinance Studies in Jordan Microfinance in Jordan has studied fewtimes; it was firstly demonstrated through the World Bank WB in 2001 aimed at evaluating Development and Employment Fund DEF. The WB reviewed the small scale financing in Jordan via governmental organizations focusing on DEF activities, and recommending liquidating its assets and leaves the market to non governmental organizations NGOs (Brandsma, WB, 2001). In 2007, Planet Finance in cooperation with the Ministry of Planning & International Cooperation MOPIC and French Development Agency studied the activities of seven Jordanian MFIs, through a field surveyto a sample of 1314 MFIs’ beneficiaries, the study finding was mainly concerned with the beneficiaries’ characteristics, loans’ conditions, projects’ formalities, income of projects’ owners, and the social impact of loans on the beneficiaries (Planet Finance, 2007). Recently, in 2011, there was a policy paper study published by the Economic & Social Council aimed at investigating the status of microfinance sector, and the policies that activate the role of MFIs
123 European Journal of Economics, Finance And Administrative Sciences - Issue 42 (2011) in achieving the socio-economic national goals for Jordan, especially in combating unemployment. The main recommendation of the study is that the government and the private sector, under their corporate social responsibility, should promote to establish more non-profit MFIs as an active tool to combat poverty and unemployment(Economic and Social Council, 2011, P 2). Furthermore, International and Arab network entities always publish evaluative and comparable reports on Arab microfinance and international ones. SANABEL as an Arab specialized network usually publish Arab MFIs experience in financing microenterprises data and reports. Strictly speaking, no study touched the MFIs’ financial viability in comparison to their outreach, either at the state level, or at entity level. 3. The Study Methodology 3.1. The Study Objective The study aims to investigate the ability and the credibility of Jordanian Microfinance Institutions’ (MFIs) to achieve lending outreach and width performance. 3.2. Why the Study It’s widely believed that, microfinance is an appropriate tool for local development. Therefore, microfinance programs have to be developed for the poor and, local communities as an overarching objective, not as an end in itself. To do so, MFIs should have an outreach ability and mechanism to cover poor and remote areas in need to promote the unemployed people to establish and develop income- generating projects. 3.3. Data and Time-Frame The study utilizes 2009 data, as the last available data for comparisons. Thereby, it will benefit the data and comparable key performance indicators (KPIs) of Arab Microfinance Network (SANABLE) and MixMarket international published information. 4.4. The Context and Population of the Study The study, to achieve its objectives, will comparably analyze the financial performance of eight Jordanian MFIs utilizing seven main financial return KPIs and, six main liquidity and risk KPIs compared to 15 outreach KPIs that are accredited and published by the Arab Microfinance Newsletter (SANABLE) and MixMarket. However, due to the fact that Jordan’s MFIs are not legally tolerated to have deposits, the study utilized eight outreach KPIs out of the 15 mentioned. Thereby, in total, the study comparably analyzes 21 financial KPIs. 4. The Study Findings 4.1. An Overview of Microfinance in the World In the world, there are 1885 specialized MFIs, with a portfolio of 64.8 b. US $ by the end of 2009, and roughly 90.8 m. active borrowers with an average loan balance of $ 523 per borrower(www.themix.org/mfi/country/Jordan&www.mixmarket.org). Among Arab population of 370 m., 26% of which are estimated to be living on less than US $ 2 per day. However, microfinance in the Arab region is continued to be highly profitable in 2009, it recorded the highest median return on assets ROA at 3.4%(SANABEL & Mix, 2010, P6). Arab Microfinance sector is the second youngest microfinance sector in the world. It continues to grow with high rates; 10 Arab states have 55 specialized MFIs, including Iraq. In general, Arab Microfinance is characterized by its mature MFIs; using two lending methodologies, namely solidarity
Page 1: European Journal of Economics, Fina
Page 5 and 6: 125 European Journal of Economics,

Jordan Microfinance Institutions' Financial Viability to ... - EuroJournals

Create successful ePaper yourself

Delete template?

Save as template?