Jordan’s banking industry is leading the way in Islamic finance

Having spread the values of Islamic banking throughout the Middle East, Jordan Islamic Bank now has its sights set further afield


People around the world are becoming more receptive to the idea that Islamic banking, more so than traditional banking, is a safe and ethical option. With approximately 400 banks spread across 60 countries, Islamic banking is fast filtering into the mainstream, and commentators are confident that the sector will continue to flourish in the months and years ahead.

Proof of Islamic banking’s recent success lies in the fact that the total number of assets under management, as of 2014, numbered around $2trn, having grown 10 to 20 percent in each of the past five years, and the figure is forecast to reach an impressive $3.25trn by 2020. Clearly, the demand for Islamic banking is on the rise, and observers needn’t look much farther than Jordan for proof of its ability to improve economic and social wellbeing.

Speaking at the Administrative Governance of Islamic Financial Institutions, Sheikh Saleh Kamel, Chairman of the Council of Islamic Banks and Financial Institutions, said: “Islamic finance has become a major pillar of economic systems, and continues to achieve success and geographic expansion. Taking the economic message of Islam based on the principles of justice and fairness to the new industrial wheels for development and progress.”

Origins of prosperity
In 1978, three years on from when Islamic banking was first established in Dubai, Jordan Islamic Bank (JIB) started the country’s first Islamic bank in Amman, and laid the foundations for what is today a major economic driver. Speaking at the same conference, Musa Shihadeh, CEO and GM of JIB, said the bank not only put Islamic banking on the map, but has also contributed to the consolidation of the sector in Jordan and the surrounding region.

In the years since, the bank has consolidated and deepened the values of the Islamic sharia by means of dealing with all people according to the teachings and principles of Islamic law. Committed to serving all parts of society equally and the latest innovations in banking, JIB numbers among the country’s most trusted companies, and an important part of the economic landscape.

“We are very committed to applying the latest innovative products and services in the banking and technology [sectors].” In keeping with its status as a pioneer in Islamic banking, JIB commits to new products and services as customers demand them, keeping to the latest innovative advances in banking.

Important decision makers across the globe have publically backed Islamic banking, owing to its ability to post positive results in times of a crisis. On average, Islamic banks have racked up growth rates of between 15 and 20 percent as a result of prudent policy decisions, and, at the last G20 Economic Summit, policymakers recommended the use of Islamic financing instruments as a mean of improving performance.

Important decision makers across the globe have publically backed Islamic banking, owing to its ability to post positive results in times of a crisis

The sector, according to Islamic law, offers services with a commitment to ethical purposes and refuses to deal in any transactions involving interest. Islamic banks refrain from financing any service that causes harm to people, society and the environment, which means they will not deal in derivatives, speculation or gambling. The growth of the sector therefore, is closely in keeping with the growth of real economy and benefits the many as opposed to the few in society.

Going back to JIB, the bank has a sharia supervisory board consisting of three expert scholars, and their job is to review any transaction in order to make sure no interest is involved, and that the bank’s products and services comply with Islamic law. Likewise, it’s the priority of JIB management to keep adequate liquidity in order to meet the requests of customers in serving both the public and private sector.

With a 60 percent share of the local Islamic banking market and strong assets (see Fig. 1), JIB operates in excess of 90 branches and 160 ATMs, in addition to its I-Banking system, and presides over an experienced staff of 2,000. Of all the banks in Jordan, JIB has the best ROE and one of the best NPL percentages.

Proud of its recognition in local and global circles as a pioneer of Islamic banking, JIB has received a long list of awards for its contributions to the industry, not to mention distinguished ratings from international rating agencies. S&P gave JIB a BB-/Stable/B rating, whereas Fitch awarded the bank a BB- for its long-term obligation in foreign currencies and a B for its short-term obligations in foreign currencies with a negative outlook.

Socially responsible programmes
Going beyond financial performance, JIB’s contributions to society and the environment number among the most impressive in the region, and earned the bank a reputation as a responsible corporate citizen. The banks’ articles of association states that it is committed to providing banking and social services to all people in compliance with sharia principles. In the spirit of doing just that, it has established not one but two social responsibility committees.

The job of the first committee – which is comprised of board members – is to implement policy plans, while the second – comprised of management – will implement a strategic sustainability plan. In recognition of the bank’s commitments, the International Organisation for Standardisation (ISO) sent a letter in appreciation of the pilot organisation’s participating in the ISO project on uptake and use of ISO 26000 guidance on social responsibility within the MENA region.

The letter also thanked JIB for its active participation in achieving positive results for sustainable, environmental, social and economic development. Essentially, the bank’s social responsibility commitments are of an international standard and set a precedent for Islamic banking in the region and beyond.

The bank’s emphasis on community development can be seen at work in a number of social projects. In choosing to finance small projects focusing on the twin issues of poverty and unemployment, the bank’s emphasis on local development goes beyond its customer base and extends to the wider community. JIB has committed to community development since it was established, and will continue to do so by supporting and financing SMEs, craftsmen and professional sectors. JIB graph

JIB has offered free-interest loans (known as Qarad Hassan) since its first began, and remains the only bank in Jordan to do so. In short, the social service helps Jordanian citizens by financing education, medical treatment and marriage. The loans are then repaid to the bank without any interest whatsoever, as the service is a product of the bank’s desire to help those in need.

The Social Responsibility committee has also been hard at work when it comes to implementing a strategic sustainability five-year plan from 2014 to 2018. In it, JIB has pledged to boost its reliance on renewables by 50 percent over the next five years and reduce water consumption by 20 percent before the end of 2018.

More generally though, the bank has made ambitious promises to protect the local environment, and will continue to finance projects led by the ministry of environment and ministry of agriculture. Inside the bank, JIB has arranged an annual awareness session for senior management and subsidiary companies with a view to improving company culture.

Outside, the bank’s plans consist of sending between 3,000 and 10,000 SMS messages to customers about key sustainability issues, and representatives from JIB management will speak about sustainability during at least one relevant conference or seminar per year.

In a climate where consumers the world over are pushing for greater commitment to sustainability, JIB is a shining example of what can be achieved by not just Islamic banking, but by financial services in general. Banks remain an important part of the community, with many of them uniquely positioned to influence people’s lives for the better or worse, and with the right strategy in place, the sector can have an important hand in bettering people’s lives.

JIB’s plans for the future are to diversify and develop its banking services in the broadest possible sense. This means expanding both its portfolio and market share, expanding its branch network, and boosting relations with investors and clients.

Within this remit, JIB will also seek to expand and continue to finance SMEs to support the local economy, and help solve the enduring issues of unemployment and poverty in Jordan. The bank also has plans to issue an Islamic bond (or sukuk), which, while popular all over the world, is yet to grace Jordan’s Islamic banking sector.

Should JIB make good on its ambitions, both generally but also with regard to its five-year sustainability plan, Islamic banking will build on its reputation as a key contributor to social and economic development.