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Jordan Loan Guarantee Facility Spurs Economy, Creates Jobs
Published 06/05/2019 by Global Communities
Members of the Jordan Loan Guaranty Facility (JLGF) team were at Global Communities headquarters recently to discuss the important work of JLGF – providing insight into the mechanics of this program, as well as its impact. JLGF provides partial loan guarantees and technical assistance to enable creditworthy but previously underserved small and medium enterprises (SMEs) to obtain bank financing for start-up and expansion efforts.
JLGF is a $250 million Loan Guaranty Facility operated by Global Communities, and established with the support and guaranty coverage from USAID and the Overseas Private Investment Corporation, respectively. SMEs in Jordan contribute 50 percent of the GDP of the private sector, provide 52 percent of private sector employment, and form 98 percent of the corporate sector in Jordan.
An SME’s annual revenues must not exceed $15 million or its assets must not exceed $15 million, and the number of employees must not exceed 300. As JLGF Deputy Chief of Party Yara Barq explained, JLGF is beneficial to banks and SMEs for a number of reasons. Private sector investment in SMEs fosters broad economic growth and permanent job creation. Further, training in international best practices in credit analysis creates more willing bankers and more bankable potential borrowers.
To date, 25 percent of the loans guaranteed by JLGF have supported businesses in governorates outside Amman, which is critical since families living beyond the capital city are often extremely underserved. 15.5 percent of loans have supported women-owned SMEs and 7 percent have gone to start-up businesses. JLGF also strengthens bank capacity for sustainable SME lending with technical assistance and capacity building workshops for banks and others for SMEs.
To help reach these underserved borrowers, JLGF uses a credit analysis framework that considers factors such as credit history, collateral, concept and character to determine their ability to make good use of loans and pay them back on time. Using this methodology, JLGF has a very healthy default rate of 1 percent. “98 percent of the companies in Jordan are SMEs, so by supporting them we are helping the overall economy thrive,” said Barq.
JLGF has increased access to finance for a group critical to the growth of the Jordanian economy, and has done so while maintaining extremely manageable levels of risk.