• 2022-07-19

The financial system in Jordan

The financial sector in many countries, especially after the 2008 financial crisis, began to receive increasing attention from some economists and economic policy makers, and the excessive expansion of the use of financial leverage in the hope of achieving more profit led to a significant growth in the volume of credits in the period before the 2008 financial crisis. Accordingly, the financial sector has become one of the most important sources of economic instability, and it is the main source of the financial crises that afflict the economy.

The financial sector plays an important role in economic activity through the financing role played by banks and other financial institutions, which is to provide credit facilities to the productive sectors, enabling them to practice their economic activity and increase production and thus raise economic growth rates.

On the other hand, the role played by many financial institutions has contributed to creating more financial instability, such as mortgage companies, hedge funds and investment funds that borrow from banks by issuing backed bonds and covered with financial assets within financial portfolios.

1 - Whoever buys these bonds includes them in his portfolio as assets and issues new bonds against them that enable him to borrow from banks and so forth, so that the largest volume of loans granted by banks and other financial institutions is given to investors in financial assets that are no more than obligations on other debts. .

2- In addition, the rapid transfer of financial assets from one investor to another to avoid risks through the practice of various forms of hedging operations, has enhanced the financial and economic instability and increased the possibility of financial and economic crises.

3- The removal of obstacles to the free movement of capital between countries, which was adopted by WTO, contributed to the rapid transmission of financial crises from one country to another.

4- The behavior of the financial institutions (most notably the commercial banks) in giving loans that are compatible with the financial cycle enhances the severity of the economic cycles. The banks are strict in granting credit facilities, which deepens and prolongs the economic downturn.

Components of the financial sector in Jordan

First: The financial institutions that are subject to the supervision of the Central Bank:

1) Licensed commercial banks and Islamic banks:-

According to the latest statistics, the number of public banks in Jordan has reached 24, 13 commercial banks, 3 Islamic banks, and 8 branches of foreign banks; As for the branches of Jordanian banks abroad, it reached 194, including 97 branches in the Arab State of Palestine.

As for the interest rates, the overnight deposit window rate was 3.25%, the re-discount rate was 5%, the repurchase rate was 4.75%, and the lending interest rate for the best customers was 9.33.

2) Insurance companies:

Individuals turn to insurance companies; To benefit from the amount offered by these companies as compensation for some of the dangers they are exposed to, such as burning their homes, being robbed, or in cases of illness, disability, and others, in return for a material amount called the insurance premium. Insurance companies suffer from the problem of fraud and fabricating accidents, especially vehicle insurance.

The number of insurance companies operating in Jordan is approximately 24, according to the latest statistics. These companies are distributed as follows: 15 companies licensed to engage in joint insurance business, 8 companies licensed to engage in general insurance business, and one company licensed to engage in life insurance business.

3) Exchange companies:-

The number of licensed exchange companies in Jordan has reached 140 operating as a main center, in addition to 141 branches distributed throughout the Kingdom.

The Central Bank of Jordan expanded its powers to enhance the regulatory cycle and activate its supervisory role over the sector by working on issuing a new exchange law in 2018, which bears No. 44 of 2015. According to this law, the Central Bank began exercising its supervisory role over the exchange sector, not only in the office but also in the field. He also issued instructions for exchange companies to maintain foreign currency accounts and instructions to combat money laundering and terrorist financing.

Second: Companies affiliated with the Central Bank:

1) The Deposit Insurance Corporation:

Its objective is to protect depositors with licensed banks through the guarantees of their deposits with them, which motivates savers by placing their savings as deposits with the banking system.

2) The Jordanian Loan Guarantee Company:

The company aims to provide guarantees for credit granted to certain economic activities.

3) Jordan Mortgage Refinance Company:

It aims to develop and activate the housing finance market and help low-income people to meet their housing needs by providing medium and long-term financing to banks and financial companies in the Kingdom to enable them to expand granting housing loans to citizens on appropriate terms.

Third: Financial institutions subject to the supervision of the Securities Commission:

It includes the Amman Stock Exchange and financial brokerage companies, and the Amman financial market witnessed a large activity in the daily trading volume, and a continuous rise in stock prices for the period before the global financial crisis in 2008, but after the crisis, the market began to witness a significant decrease in the volume of trading and a decline in the stock index, Especially with the end of the year 2018, and this decline resulted in large losses for investors in the financial market, and the reluctance of investors to invest in the financial market increased the adoption of the new income tax law in 2018.

Fourth: Social Security Fund Investment Fund:

The Social Security Funds Investment Fund started a currency in 2003 after the investment activity was separated from the activity of old-age insurances, as the Social Security Corporation became specialized in the aspect of old-age insurances mainly and some other insurances, while the Social Security Funds Investment Fund became specialized in investing funds Security, where the Social Security Corporation transfers what it has of the surplus contributions of the insured to the Fund and the Fund invests and manages it.

Fifth: Non-bank financial companies:

These are the financial institutions that grant credit to customers without accepting deposits and were subject to the supervision of the Ministry of Industry and Trade until 2015, when there was a tendency for the Central Bank to impose its direct control over these companies, and accordingly, microfinance institutions operating in Jordan were included and seeks to subject the rest of the non-bank financial institutions This is due to the important role that these companies play in achieving financial stability.

1) Microfinance companies:-

There are 14 companies, one of which is affiliated with a bank, and one company is affiliated with UNRWA. These companies provide loans for financing with a value ranging from 300-5000 dinars at very high interest rates that ranged between 10-18%.

2) Financial leasing companies:

They are companies that lease the assets requested by the project in return for a variable interest rate ranging between 9.5% -13%, and the number of these companies is 15 companies, 9 of which are affiliated with banks and they control most of the activity of the financial leasing sector. In contrast, the real estate sector accounts for 70% of the Financial leasing portfolio.

3- Multi-finance companies:

It is the one that provides financing for different economic activities that are more diversified than others. This financing is for the individual and small and medium-sized companies sector. The financing is carried out by checks and bills of exchange with the condition of having a guarantor and providing a mortgage, at an interest rate ranging from 7% - 13%.

4- Small and medium enterprise finance companies:

They are two specialized companies for financing small and medium projects, but financing small and medium projects is not limited to these two companies alone. There is financing from commercial banks for such projects, and it constitutes about 13% of the total activity of financing small and medium projects.