Despite the spread of Islamic financial institutions throughout the region, the fact is that Jordan’s potential demand for tailored Islamic finance products is still largely unmet — only the needs of 4% of clients who prefer Shariah banking have been met by institutions offering a mix of conventional and Shariah compliant products. Therefore, Ethmar has been established on the principles of Islamic Shariah and its procedures and policies have been developed to be Shariah compliant. This is crystallized in the Shariah committee which is composed of theologians with distinguished experience. It has also been granted a legal advisory opinion (Fatwa) from the Jordanian Dar Al-Ifataa to implement the provisions of Shariah with integrity in all its transactions. ZIAD AL REFAI explores.
Ethmar is Jordan’s first Shariah compliant finance company that adheres to innovation as an approach to design and develop its products to meet the needs of underserved clients. The idea of Islamic microfinance is based on the principles of sharing capital, work, effort and risk in any business or investment project in accordance with the provisions of Islamic Shariah laws.
Founded in 2015 by the King Hussein Foundation and licensed by the Central Bank of Jordan, Ethmar for Islamic Microfinance (Ethmar) aims to fight poverty and unemployment by providing financial solutions to low-income individuals such as employees, workers and retirees as well as licensed and household businesses to improve their standard of living and address their social problems.
In order for social and financial services to reach all segments of the Jordanian society, an innovative model of economic and social empowerment is needed to provide innovative Islamic financial products and solutions. To achieve financial inclusion, branchless operations are created to engineer creative Shariah compliant products for nearly 2,500 new and existing home-based and licensed businesses as well as employed clients and paid retired clients. This way, finances are disbursed in less than 30 minutes with 92% of clients utilizing electronic wallets.
In order to meet the increasing demand for Shariah compliant financial services at the lower end of the market, innovative products and services are continuously developed to meet market trends in terms of needs, behaviors and preferences. Demand for Islamic financial services is increasing in high population density areas in Jordan especially customer segments. As at December 2018, Ethmar’s total loan disbursement has reached JOD6 million (US$8.46 million), serving over 6,000 borrowers and an outstanding portfolio of close to JOD2.4 million (US$3.39 million) with over 2,200 active borrowers.
Tailored Islamic microfinance products are considered efficient instruments to encourage entrepreneurship and facilitate the creation of micro and small enterprises. However, access to credit remains a serious bottleneck to financial institutions as well as to MSMEs as evidenced by Jordan’s very low ranking (104th) in the World Bank’s most recent Ease of Doing Business Index.
The focus on building the quality of its products and services is not only through traditional Islamic products such as Murabahah but also through niche products such as Ju’alah, Istisnah and installment sale, a cost-free finance.
Recently, Ethmar has developed a vocational and educational product to meet the unmet demand, targeting unemployment and the youth. It aims to finance educational programs and provide opportunities to students and the youth from the middle and low-income classes to obtain vocational education with guaranteed job opportunities. This will enhance their competencies and skills through financing the needed training and lowering the burden of educational debt on parents.
The unique business model in Jordan will provide financial solutions utilizing a solid partnership with accredited colleges such as Al Hussein Technical University and Khawarizmi International Academy to serve youth enrollment in vocational educational programs with guaranteed job opportunities later. This program will enable candidates to pay back the loan after program completion and starting their career.