Review of Options for Savings Mobilization Amongst AMIR Supported MFIs: Final Report

Publication Date: Nov 2000
Published by: USAID - U.S. Agency for International Development
Document Type: Paper

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Are microfinance institutions destined to remain marginal playesrs in Jordan's finacial sector?

Jordanian MFIs are at an early state of their development offering a limited range of credit products and, according to this paper, their immediate challenge is to achieve sustainability and offer a broader range of credit-based products
Following analysis of the four credit-granting MFIs supported by AMIR, the paper concludes that:

• They are not yet financially or operationally sustainable;
• Sustainability can be attained through high penetration rates of markets with distinct boundaries and limits to growth;
• Taking total present loan fund capitalization into account, and assuming a leverage ratio of 2:1 on the WLF, they will be could manage performing assets of approximately JD 11 million;
• Existing sources of loan fund capitalization are adequate for all four to achieve their sustainability goals, and finance potential growth well beyond that.

• The Central Bank sets minimum capitalization levels of JD 20 million (beyond the means of all MFIs);
• The Central Bank is concerned to consolidate the banking industry, preventing MFIs from evolving into financial intermediaries;
• Unable to experiment with savings mobilization, MFIs are destined to remain marginal players in Jordan's financial services sector and can only expand on the basis of equity investment that may put at risk their commitment to poverty-lending.

• The Central Bank could permit the establishment of a delegated superintendancy that differentiates between MFIs and authorizes two levels of supervision, distinct from the provisions that apply to mutual ownership or licensed equity banks:
  • Credit only MFIs supervised by the proposed Microfinance Association, whose members subscribe to a code of professional standards and practice;
  • MFIs authorized to issue commercial paper and mobilize limited savings supervised by bodies authorized by the Ministry of Industry and Trade.
  The paper suggests that this approach could help ensure that systemic risk is avoided and financial and manpower costs of direct supervision do not fall on the Central Bank. However, it adds that AMIR should not give priority to this because it needs to ensure stability and profitability of the MFIs, in line with their newly revised business plans.