Financial Inclusion Diagnostic Study in Jordan 2017 ...

1 Financial Inclusion Diagnostic Study in Jordan 2017, Synthesis Report 2017 Deutsche Gesellschaft f r Internationale Zusammenarbeit (GIZ) GmbH and Central Bank of Jordan A2mman, Jordan | December, 2017 As a federally owned enterprise, GIZ supports the German Government in achieving its objectives in the field of international cooperation for sustainable development. The program Promotion of the Microfinance Sector in the MENA Region / Promot-ing Financial Inclusion through improved governance and outreach of Microfinance in Jordan is carried out by GIZ with funding by the European Union (EU) and by the German Federal Ministry for Economic Cooperation and Development (BMZ). The views expressed here do not necessarily reflect the official opinion of the EU or BMZ. Published by: Deutsche Gesellschaft f r Internationale Zusammenarbeit (GIZ) GmbH Marouf Al Rasafi Street, Building 19, Shmeisani Box 92 62 38, Amman 11190, Jordan T: +962 6 5692153 E: I: Central Bank of Jordan (CBJ) King Al Hussein Street 60 Box 37, Amman 11118, Jordan T: +962 6 4630301 E: I: Produced by: Business & Finance Consulting Max-H gger-Strasse 6 8048 Zurich, Switzerland T: +41 44 784 22 22 E: I: Responsible: Dr.

2 Maher Sheikh Hasan (Deputy Governor, CBJ), Hayder Al-Bagdadi (Head of Project, GIZ), Bilal Yan Hagen (Team Lead, GIZ) Authors: Peter Hauser, Dan Pavelesku, Artur Vacarciuc (Business & Finance Consulting) Support: Amr Ahmad (CBJ), Atilla Kaiser-Y cel (GIZ) Reviews: Maha Al Abdallat, Aktham Abuassi, Mohammed Amaireh, Maha Bahou, Haneen Al Muhaissen, Dr. Waleed Al-Qasrawie, Nibal T. Al-Rashdan, Batool Shaban (CBJ), Dr. Ali Yaghi (Al Hussein Fund for Excellence), Dr. Nimal Fernando (Senior Financial Inclusion Specialist), Armin Satzger (GIZ) URL links: This publication contains links to external websites. Responsibility for the content of the listed external sites always lies with their respective publishers. When the links to these sites were first posted, GIZ checked the third-party content to establish whether it could give rise to civil or criminal liability.

3 However, the constant review of the links to external sites cannot reasonably be expected without concrete indication of a violation of rights. If GIZ itself becomes aware or is notified by a third party that an external site it has provided a link to gives rise to civil or criminal liability, it will remove the link to this site immediately. GIZ expressly dissociates itself from such content. Maps: The maps printed here are intended only for information purposes and in no way constitute recognition under international law of boundaries and territories. GIZ accepts no responsibility for these maps being entirely up to date, correct or complete. All liability for any damage, direct or indirect, resulting from their use is excluded. Financial Inclusion Diagnostic Study in Jordan 2017 3 Table of Contents Executive summary.

4 7 Financial access .. 7 Regulatory framework .. 10 Payments, transfers and remittances .. 10 Microfinance .. 11 SME finance .. 11 Financial literacy and education .. 12 Consumer protection .. 12 Niche, emerging and other industries .. 13 Conclusions and recommendations .. 13 1 Introduction .. 15 About Financial Inclusion in Jordan .. 15 About this report .. 15 2 Financial access .. 17 Overview .. 17 By product .. 20 By segment .. 33 By access point .. 45 3 Regulatory framework .. 51 Banking sector .. 51 Microfinance sector .. 52 Payments and digital Financial services .. 53 4 Payments, transfers and remittances .. 57 General market overview .. 57 Digital Financial Services (DFS) .. 60 5 Microfinance .. 66 Measurement of Financial Inclusion .. 66 Constraints to Financial Inclusion .. 67 Target segments .. 69 Products and policies.

5 70 Funding .. 73 Non-credit products .. 73 Informal finance and other competitors .. 74 6 SME finance .. 77 Constraints to Financial Inclusion .. 77 Target segments and eligibility criteria .. 78 Credit products .. 79 Non-loan products .. 82 7 Financial literacy and education .. 85 Financial literacy and behavior .. 85 Financial education .. 87 8 Consumer protection .. 89 Overview and key constraints .. 89 Regulations .. 89 Transparency .. 90 Prevention of over-indebtedness .. 91 Fairness .. 92 Responsible pricing .. 92 Complaint resolution .. 93 9 Niche, emerging and other industries .. 94 Insurance .. 94 Financial Inclusion Diagnostic Study in Jordan 2017 4 Islamic finance .. 96 FinTech .. 97 10 Conclusions and recommendations .. 99 The current state of Financial Inclusion in Jordan .. 99 Priority segments and products.

6 99 Suggestions for further research .. 100 Suggested improvements to the data collection methodology .. 102 Suggested regulatory initiatives .. 103 Technical assistance programs and other initiatives .. 104 Appendix 1: Demand survey .. 107 Methodology .. 107 Profile of survey respondents .. 107 Appendix 2: Financial Inclusion indicators .. 111 Supply side indicators .. 111 Demand side indicators .. 112 Appendix 3: Bibliography .. 115 Appendix 4: Basic DFS definitions and classification .. 116 Appendix 5: Overview of Financial education curriculum in schools .. 117 Appendix 6: Financial knowledge and behavior results .. 118 Appendix 7: Survey results for questions on digital Financial services .. 119 Financial Inclusion Diagnostic Study in Jordan 2017 5 List of acronyms and abbreviations ABJ Association of Banks in Jordan ACC Agricultural Credit Corporation ACH Automated clearing house AFI Alliance for Financial Inclusion AML Anti-money laundering APR Annual percentage rate ATM Automatic Teller Machine BFC Business & Finance Consulting CBJ Central Bank of Jordan CBO Community-based organization CGAP Consultative Group to Assist the Poor CFT Combatting the financing of terrorism DEF Development and Employment Fund DFS Digital Financial services DOS Department of Statistics EBRD European Bank for Reconstruction and Development EMP Emerging Markets Payments EU European Union FI Financial institution FLS Financial literacy score GDP Gross Domestic Product GCC Gulf Cooperation Council GIZ Deutsche Gesellschaft f r Internationale

7 Zusammenarbeit (GIZ) GSM Global System for Mobile (Communications) IFC International Finance Corporation IMF International Monetary Fund JLGC Jordan Loan Guarantee Corporation JOD Jordanian dinar (currency) KYC Know your customer LENS Local Enterprise Support Project LLC Limited liability company MCF Military Credit Fund MENA Middle East and North Africa MEPS Middle East Payment Services MFI Micro-Finance Institution MFS Mobile Financial services MFW Microfund for Women MIT Ministry of Industry, Trade and Supply MPSI Mobile payment services instructions MSE Micro and Small Enterprise Financial Inclusion Diagnostic Study in Jordan 2017 6 MSME Micro, Small and Medium Enterprise MNO Mobile network operator MTO Money transfer organization NBFI Non-bank Financial institution NFC Near field communication NGO Non-governmental organization NPL Non-performing loan OECD Organization for Economic Cooperation and Development PAR Portfolio at risk PIN Personal identification number P2P Person to person POS Point of sale PSF Postal Savings Fund PSP Payment Service Provider RTGS Real-time gross settlement SME Small and Medium Enterprise TA Technical Assistance UAE United Arab Emirates UNDP United Nations Development Programme UNHCR United Nations High Commissioner for Refugees UNRWA United Nations Relief and Works Agency (for Palestine Refugees in the Near East) USD United States Dollar (currency)

8 USAID United States Agency for International Development USSD Unstructured Supplementary Service Data WB World Bank Financial Inclusion Diagnostic Study in Jordan 2017 7 Executive summary The Government of Jordan defines Financial Inclusion as a state wherein individuals and businesses have convenient access to and use affordable and suitable Financial products and services that meet their needs and help to improve their lives payments, savings, credit, transactions and insurance delivered in a responsible and sustainable way. Studies have consistently shown that increasing Financial Inclusion has the potential to improve living standards, combat poverty and unemployment, promote equality, and enhance Financial stability and integrity. As formal fi-nancial Inclusion in Jordan is quite low among certain segments of the population, the Jordanian government and international organizations have started to take action to better understand the causes and to find ways to boost the availability, usage and quality of Financial services.

9 This Study of Financial Inclusion in Jordan was mandated by the Central Bank of Jordan and Deutsche Gesellschaft f r Internationale Zusammenarbeit (GIZ) GmbH for the Promotion of Financial Inclusion . The main objective of the Study , carried out by Business & Finance Consulting GmbH (BFC), was to establish a baseline for Financial Inclusion by assessing the state of access to, usage and quality of Financial services; the regulatory, physical and commercial barriers thereto; and the gender, socio-economic, demographic and geographic usage specifics and needs. Financial access Jordan has experienced improvements in a number of key indicators of Financial access in recent years. Arguably the most important indicator is the share of adults with an account, which increased to in 2017 from in 2014. Other indicators of Financial Inclusion are discussed below, organized by product type, customer segment, and method of access.

10 A selection of the most important indicators are presented in the following table. Demand indica-tors are sourced from customer surveys, while supply indicators are generated by Financial institutions. Core indicators of Financial Inclusion Deposits and savings Source Value Has account at Financial institution Demand Has bank account Demand Has mobile wallet account Demand Has postal savings account Demand Has informal savings account Demand Has debit card Demand Saved money at Financial institution in past year Demand Bank deposit accounts per 1,000 adults Supply E-money accounts per 1,000 adults Supply Credit Source Value Borrowed from Financial institution in past year Demand Borrowed from bank in past year Demand Borrowed from MFI in past year Demand Borrowed from any source in past year Demand Has credit card Demand Outstanding bank loans per 1,000 adults Supply Outstanding MFI loans per 1,000 adults Supply Total outstanding loans per 1.