Jordan’s banking sector holds up the economy

Focusing on social development and financial performance is keeping Jordan’s banking sector on the straight and narrow at a time when neighbouring nations are struggling


Although Jordan’s recent fortunes have been hampered by any number of external shocks (see Fig. 1), the country’s banking sector has emerged as a key economic contributor and an area in which the Hashemite Kingdom of Jordan is performing ahead of those even in more developed countries. With credit facilities, assets, capital adequacy and liquidity all on the up, banking has played a key part in setting the national economy on a clear path.

Yet the sector’s success is not due simply to financial performance, but also a willingness among leading industry figures to focus on ever-changing stakeholder concerns and on positively impacting the workplace, marketplace and society in which they work. We spoke to Jordan Islamic Bank’s (JIB) Vice Chairman, CEO and GM, Musa Shihadeh, about the bank’s role in leading the nation onto better things.

From strong beginnings
Established in 1978, JIB is responsible for single-handedly launching the country’s Islamic banking sector, and to this day the bank continues to have a positive influence on many of the country’s larger dealings. Recognised locally and globally as a pioneer of Islamic banking, “JIB is committed to offer banking services and social services to all people in compliance with the Islamic sharia principles”, says Shihadeh.

As of 2013, Islamic banks accounted for just shy of 21 percent of all financing, over 16 percent of all deposits and 14 percent of total banking industry assets, of which JIB accounts for over 13, 10 and eight percent respectively.

[B]anking has played a key part in setting the national economy on a clear path

The bank’s success (see Fig. 2) is closely in keeping with a three fold commitment to consolidate and deepen the values of Islamic sharia, equally serve the interests of all stakeholders, and apply the latest applicable products and services in banking and technology. However, what differentiates JIB from so many others in the banking industry is its sustainable strategy, and it is for this reason chiefly that JIB has been awarded the World Finance Award for Best Banking Group and Best Islamic Bank in Jordan, 2015.

With a network of 86 branches and 147 ATMs, JIB enjoys a worthy reputation as an industry giant. As the largest of the country’s four Islamic banks with the third-largest conventional banking system included, JIB is proof that a focus on innovation and corporate social responsibility can lift both the business, economy and society as a whole. “The bank adopts the values of the Islamic faith as its method and constitution, and embraces the principles of the Islamic economy as a guide.

“In doing so, it has played an effective role in socio-economic development and has come to occupy a distinguished place among the banks operating in Jordan”, writes the bank’s Chairman of the Board of Directors, Adnan Ahmed Yousif, in JIB’s latest Social Responsibility Report. “The bank will keep with its straight path, Allah willing, to serve its message, interact with the needs of the national economy and of local society, and contribute to each good deed with all means it has”, Shihadeh adds.

Providing sharia-compliant banking and social services to all people means that sustainability and corporate social responsibility are deeply embedded in the very fabric of the business. Evidence of this can be found in the fact that JIB has established two social responsibility committees, one for board members and the other for management, with the former responsible for policy plans and the latter for the implementation of a strategic sustainability plan.

Here the bank’s social responsibility committee has introduced a sustainability strategy plan for five years from 2014 to 2018, which outlines a number of key objectives. Of the goals is one that states JIB must rely on renewable energy resources for 50 percent of the bank’s energy consumption, and another that will see JIB work alongside the Ministry of Water and Irrigation to reduce total water consumption by 20 percent before 2018’s year’s end. The measures mean that the bank can minimise its impact on the environment and, in doing so, JIB has implemented environmental standards that others in the industry can aspire to.

Jordan's current account balance

However, JIB’s ambition is not simply to reduce its environmental impact, but to breed a culture of sustainability. And in a bid to ensure its staff are well equipped to do whatever job they’ve been tasked with, another of JIB’s goals is to raise training to 60 hours per year, per employee by 2018, and to protect against any human rights violations. Far from excluded to its own employees, JIB has pledged to support and fund SMEs and, in doing so, drive social and economic development at a national level.

Regulated reviews
JIB’s sustainability strategy plan also contains a number of sub-objectives, intended to bring a greater measure of sustainability to the banking sector and to the wider economy. Among these secondary commitments is a system of incentives, designed to award participation in social responsibility plans, to which the bank has put in place systems that ensure relevant parties periodically review and evaluate governance processes, to be committed accordingly.

In upholding what the bank believes to be important principles of good governance and social responsibility, it will continue to commit valuable resources to community development programmes and the financing of social projects. Since the bank’s establishment, it has and will continue to commit funds to the development of the community, namely by supporting and funding SMEs, craftsmen and professional sectors.

The bank has recently launched a new programme to finance the purchase of basic goods, medical treatment and hybrid cars for citizens who may otherwise be unable to afford basic goods. JIB’s decision to offer interest-free loans – or Qarad Hassan – is typical of the bank’s pioneering spirit, and it remains the only bank in Jordan to offer a product of this type.

Similarly, JIB runs a scheme to support young craftsmen and women to get projects of their own off the ground. In 2013, the bank helped thousands of Jordanian citizens by paying $2.62m for education, $842,993 for medical treatment and $711,578 for marriage, the entirety of which will be repaid in monthly instalments with zero interest. Since the product’s first outing, approximately 350,000 people have benefited from almost $280m worth of handouts. JIB can play a vital part in reducing poverty and alleviating the unemployment problem in Jordan.

JIB has also established a social services/joint insurance fund, which, since it began in 1994, has cost the bank over $700,000. The premise of the programme is that participants will jointly indemnify part of any damage incurred on any of them according to Takaful principles, meaning that any persons involved are helping themselves without on boarding additional financial obligations.

This focus on social and environmental responsibility is not only crucial for the banking sector but for Jordan as a whole, in bringing a greater measure of sustainable prosperity to a region that is otherwise characterised by instability. The part played by corporates, therefore, and particularly the banking sector, is key, and only by fostering a culture of openness and acknowledging responsibility for the communities in which it operates can Jordan’s banking sector and economy go on to achieve even greater things.

JIB's total assets

JIB’s achievements are far from excluded to environmental and social gains, however, and without an impressive financial showing the bank would not be able to pursue such ambitious social and environmental goals. JIB has the best return on equity in Jordan and one of the best non-performing loan percentages, and is even trusted with the task of training staff of Islamic banking institutions in countries apart from its own.

In committing to a philosophy of continual improvement and innovation, JIB has improved its performance year-on-year, and has continuously demonstrated that it’s capable even of meeting ever-changing and always-complicated market requirements. For example, the bank has implemented a new banking system that offers faster and more accurate services to clients. By incorporating the latest technological advances and developing new products, such as financing solutions for those completing holy rituals and students, JIB can more easily meet the needs of its customers.

This focus on continuous improvement is important for any firm in the financial services community, but even more so in Jordan, where developments come at a faster rate than they would in more mature markets. The example set by JIB, therefore, is an important one for both the banking sector and the economy, as each looks to a future of sustainable prosperity.

In the future, JIB plans to continually diversify, develop and improve the quality of its banking services, expand the issuance of sukuk, and strengthen and develop its operations to meet the Basel II requirements, as well as make preparations for Basel III. The bank will also expand its programmes for financing professionals, craftsmen and SMEs, while also attracting new customers from both the public and private sectors.

In the meantime, JIB will continue to diversify its banking services, namely by expanding financing and leasing, and by issuing tradable Islamic bonds. The bank is currently looking to expand its network of branches to 86, bringing Islamic finance to a much wider section of the Jordanian population.

By contributing at length to the country’s national development, JIB’s place in Jordan’s banking community is key not just for the economy, but for the long-term social and environmental wellbeing of those in the community.