Microfinance in Jordan: Challenges and opportunities for emerging entrepreneurs

Small and medium-sized businesses (SMEs) are important for the Jordanian economy, helping to create jobs and encourage innovation. However, financing is a major challenge for entrepreneurs. These businesses make up about 95% of all businesses in the country and employ around 60% of the workforce. Yet, they only contribute about 30% to the GDP, and their share of national exports is less than 10%. Microfinance has become an important tool in addressing this challenge by providing financial services to individuals and businesses that struggle to secure funding. 

Microfinance institutions (MFIs) in Jordan, such as the Microfund for Women and JEDCO, offer loans, savings, and insurance services to people who may not have access to traditional banks. These services help new entrepreneurs start businesses in areas like agriculture, retail, and services, creating jobs and boosting economic growth. Recent reports show that microenterprises in Jordan provide about 60% of the country’s total employment, making microfinance a key tool for strengthening the economy and promoting inclusive growth.

Even though microfinance is important, it faces several challenges in Jordan. A major issue is limited access to capital. Microfinance institutions offer small loans, but the amounts are often too low, and interest rates can be very high. This makes it hard for small businesses to grow. Additionally, many microfinance institutions have their own capital problems, limiting the funds available for lending. Another challenge is the lack of collateral. Many microfinance clients, especially low-income entrepreneurs, do not have assets to use as collateral for loans, making it riskier for lenders and leading to higher interest rates or hesitation to lend. Without collateral, it is difficult for many microenterprises to get loans, limiting their ability to grow.

On top of financial problems, many entrepreneurs in Jordan lack financial knowledge. Without understanding how to manage money, borrowers may misuse loans or struggle with repayments, which affects their ability to build sustainable businesses. This lack of financial knowledge not only makes loans harder to use properly but also increases the chances of defaulting, which weakens the microfinance system. Moreover, the process of getting microfinance in Jordan can be difficult due to bureaucracy. Although the government has made progress in supporting small businesses, getting loans often involves long procedures, lots of paperwork, and delays that can discourage entrepreneurs from seeking funding. These bureaucratic issues make it even harder for microfinance institutions to help emerging businesses.

Despite these challenges, there are several opportunities to improve microfinance in Jordan. One of the best opportunities is to expand digital financing. With the rapid growth of digital technology, digital platforms for microloans can make the loan application process easier, lower costs for microfinance institutions, and help entrepreneurs, especially in remote areas, get access to capital. This innovation could connect lenders and borrowers more effectively and improve financial inclusion. Another opportunity is to improve financial literacy programs. By offering training and workshops to entrepreneurs, microfinance institutions can help borrowers manage their loans better, create business plans, and make smarter financial decisions, which will improve the success of small businesses.

Additionally, more government and institutional support is needed to improve microfinance in Jordan. The government can reduce rules that limit microfinance, create policies that encourage it, and set up systems that make it easier for people to get funding. Public-private partnerships can help expand microfinance services, provide loan guarantees, and support programs that train entrepreneurs. Building trust between microfinance institutions and borrowers is also key to success. Institutions can build trust by offering fair terms, transparent processes, and clear communication about loan conditions, which will create long-lasting relationships between lenders and entrepreneurs.

In conclusion, microfinance in Jordan offers a valuable opportunity for emerging entrepreneurs to access the financial services they need to grow their businesses. However, for the sector to reach its full potential, challenges like limited access to capital, lack of collateral, and the need for better financial education must be addressed. By embracing digital financing, expanding government support, and building trust between borrowers and lenders, Jordan can strengthen its microfinance sector and support a new generation of entrepreneurs. With the right policies and strategies, microfinance can be the key to boosting economic growth, reducing unemployment, and ensuring the long-term success of businesses in Jordan.

Raad Mahmoud Al-Tal is head of the Economics Department – University of Jordan- [email protected]