The Islamic finance industry started in Jordan with the creation of Law No 13 in 1978 or what is more commonly known as the Jordan Islamic Bank (JIB) Law. Through this law, the first Jordanian Islamic bank, JIB, was established with a total of JOD4 million (US$5.64 million) as its capital. JIB was one of the first Islamic banks to be established in the world and second only to Dubai Islamic Bank (1975). The JIB Law remained as the law that governs Islamic banking activities until 2000 when Law No 28, which organized the activities of both traditional and Islamic banks, was passed.
Review of 2021
Currently, there are four Islamic banks in Jordan: three local banks and one foreign bank which is a branch of the Saudi Al-Rajhi Bank. The Jordanian Islamic finance industry also includes 11 Islamic non-banking companies that provide financing services and two Islamic insurance (Takaful) companies.
Jordan has achieved third place globally in Islamic finance education according to the Islamic Finance Development Indicator 2021.
This is due to the Jordanian universities that provide different academic degrees in the field of Islamic banking and finance. Jordan also boasts first place globally in the amounts of Qard Al Hasan funds disbursed with US$133 million, followed by Indonesia’s US$5 million and Pakistan’s US$300,000.
Tables 1 and 2 show some of the financial data reported for Islamic banks, financing companies and insurance companies that are currently active in Jordan.
| Table 1: Active Islamic banks in Jordan | |||||||
| Name of bank | Jordan Islamic Bank | Arabic Islamic Bank | Safwa | Al-Rajhi | |||
| Year of establishment | 1978 | 1997 | 1963 i | 2009 | |||
| Current capital ii | 200 | 100 | 100 | 15,000 iii | |||
| Assets | 2020 | 4,844.4 | 2,543.1 | 1.830.2 | NA iv | ||
| 2021 | 5,204.9 | 2,717.4 | 2,072.7 | NA | |||
| Deposits | Current | 2020 | 1,265.2 | 666.5 | 228.4 | NA | |
| 2021 | 1,363.2 | 777.4 | 282.2 | NA | |||
| Investment | 2020 | 2,842.5 | 1,492 | 1,326.6 | NA | ||
| 2021 | 3,068.3 | 1,584.7 | 1,321.2 | NA | |||
| Qard Hasan (net) | 2020 | 77.5 | 52.2 | 0.96 | NA | ||
| 2021 | 70.2 | 56 | 1.8 | NA | |||
| Credit | Retail | 2020 | 750.85 | 317.7 | 283.4 | NA | |
| 2021 | 804.8 | 345.3 | 330 | NA | |||
| Real estate | 2020 | 487.8 | 150.7 | 23.2 | NA | ||
| 2021 | 529.8 | 150.5 | 22.3 | NA | |||
| Big companies | 2020 | 564.8 | 355.8 | 376.1 | NA | ||
| 2021 | 529.3 | 396.8 | 422.1 | NA | |||
| SMEs | 2020 | 160 | 104.5 | 42.3 | NA | ||
| 2021 | 170.5 | 97.949 | 45.8 | NA | |||
| Government and public sector | 2020 | 1.06 | 0 | 150.6 | NA | ||
| 2021 | 1.2 | 0 | 366.4 | NA | |||
| Number of branches | 83 | 45 | 38 | NA | |||
| i Originally was the Industrial Development Bank which became Dubai Islamic Bank and later in 2017 changed to Safwa Bank due to a takeover
ii All amounts are in Jordanian dinar (JOD) millions iii Capital in parent company iv Due to the bank being a branch of a foreign bank, separate data is not available Source: The Jordanian Ministry of Industry’s Companies Control Department and banks’ yearly and quarterly reports |
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| Table 2: Companies providing Islamic finance in Jordan | |||
| Company name | Year of establishment | Method of finance | Current capital (JOD) |
| Emar | 2007 | Finance lease | 50,000 |
| Islamic Finance House | 2016 | Murabahah | 10,000,000 |
| Dar Al-Aman | 2008 | Murabahah | 16,000,000 |
| Mayser | 2017 | Murabahah | 10,000 |
| First Finance | 2006 | Murabahah | 35,000,000 |
| Samaha | 1998 | Murabahah and finance lease | 12,000,000 |
| Ideal | 2013 | Microfinance | 4,500,000 |
| Ethmar For Islamic Finance | 2014 | Microfinance | 3,000,000 |
| Bindar* | 2004 | Murabahah | 20,000,000 |
| Al Tas-heelat* | 1983 | Credit cards and Murabahah | 16,500,000 |
| liwwa* | 2015 | Crowdfunding | 1,050,000 |
| *Provides both Islamic and conventional financing
Source: The Jordanian Ministry of Industry’s Companies Control Department and companies’ own websites |
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| Table 3: Jordanian Islamic insurance companies | ||
| Company’s name | Year of establishment | Current capital (JOD) |
| First Insurance | 2006 | 28,000,000 |
| The Islamic Insurance | 1996 | 15,000,000 |
| Source: The Jordanian Ministry of Industry’s Companies Control Department | ||
Preview of 2022
The Jordanian environment provides the perfect opportunity for attracting Islamic financial institutions into the Jordanian market; this is due to Jordan’s political stability and growing public awareness of the importance of Islamic financial institutions and their products that meet the needs of numerous clients in different sectors.
It should also be mentioned that the Jordanian market provides a fertile ground for new Islamic financial establishments that provide financial services in the sectors of infrastructure, clean energy and other sectors that the current Jordanian banking industry does not cover.
Conclusion
The small size of the Jordanian market also means that new Islamic financial establishments do not require large amounts of capital to enter and compete in the market. Nevertheless, the lack of detailed laws that cover all the financial services and products that could be provided in different sectors, the scarcity of monetary and financial tools provided by the Jordanian central bank to Islamic banks and the concentration of Islamic financial institutions’ credit in certain sectors due to these institutions’ small capital remain the main challenges that face the Islamic financial industry in Jordan.
Prof Raed Nasri Abu-Mounes is a professor of Islamic jurisprudence and banking at the university of Jordan and an Islamic finance consultant for various Islamic financial institutions globally. He can be contacted at [email protected]
Abdelrahman Ayman Khair is a researcher in Islamic economics and finance. He can be contacted at [email protected]