• Consumer Protection
  • Microfinance regulation and supervision
Feb 3, 2015

A new regulation in Jordan aims at strengthening the regulatory and supervisory framework of the microfinance sector, while enabling expansion of the access to formal financial services for low-income, unbanked or underserved segments of the population.

The Government of Jordan passed a new regulation (no. 5 of 2015) that mandates the Central Bank of Jordan (CBJ) to regulate and supervise microcredit and other financial services offered by microfinance companies. Building on the country’s banking law, the microfinance regulation was approved by the Cabinet in late 2014 and will come into effect by mid-2015.

The new regulation and the detailed instructions that the Central Bank can issue based on this mandate, subject microfinance institutions (MFIs) registered as for-profit (LLCs and private shareholding) or non-profit companies to specific licensing and minimum capital requirements for entering the formal sector. At the same time, entities or programmes such as small NGOs providing loans for the low-income population can be exempted from the rules which, amongst others, cover:

  • Licensing requirements including the disclosure of the founding shareholders (without limitations to foreign ownership), the board members and executive management, the company’s capital and bylaws, the proposed budget etc.
  • A minimum capital requirement of JOD 2 million (non-profit MFIs can adhere to their reserves)
  • The possibility for licensed MFIs to engage in financial services other than microcredit, with the exception of taking deposits

The 8 Jordanian MFIs reporting to the MIX Market serve more than 300,000 active borrowers with an aggregate loan portfolio of approximately USD 260 million. The microfinance sector in Jordan has been growing strongly in recent years with a portfolio growth of 30% between 2007 and 2012. However, the lack of regulation besides infrastructural deficiencies prevented greater financial inclusion, system stability, better consumer protection as well as outreach and increased product range of MFIs, especially in remote areas. With the issuance of the new regulation, the CBJ is given the authority to adopt executive orders and instructions to regulate microfinance in Jordan and to supervise licensed MFIs.

By Atilla Yuecel

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