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Project: Informal Livelihoods Advancement Activity USAID Iqlaaع Project
Work Plan Activity: Activity A3. Financial Sector Analysis
Position Title: STTA for the mapping analysis of the regulatory framework for the access to finance sector with a specific focus on Alternative and Innovative Funding
Reporting: Expectation State Project Manager
Period of Performance: February – March 2023
Level of Effort (LOE): up to 45 days.
Background
Informal Livelihoods Advancement Activity (Iqlaaع (is a five-year USAID-funded program that aims to support Jordan’s home-based businesses (HBBs) and Micro and Small Enterprises (MSEs) to grow, transform, and become resilient to future shocks. HBBs and MSEs are essential drivers of employment and economic stability in Jordan. Micro and small enterprises represent 98 percent of all businesses in Jordan and compose half of the country’s private sector employment. Therefore, the Iqlaaع approach places formal and informal Jordanian HBBs and MSEs on a path to recovery, stabilisation, and growth, focusing on four critical sectors: agriculture, tourism, manufacturing, and services, with special attention to technology development and implementation.
Iqlaaع works to implement good practices in crisis response, enterprise strengthening, inclusive job creation, and financial sector development within a market-systems development (MSD) framework and leveraging innovative behavioural change methodologies to facilitate long-term, sustainable changes in the behaviours or stakeholders and beneficiaries that align better with the current needs of Jordan’s MSEs.
Iqlaaع, led by Mercy Corps (MC), weaves together technical expertise from a robust set of national, regional, and international partners including Andersen for Legal and Tax Consultancy (Andersen), Dalberg Design (Dalberg), Expectation State, Middle East Investment Initiative (MEII), Migrate-Jordan (Migrate), Q-Perspective, and American Chamber of Commerce in Jordan (AmCham).
To achieve its objectives, Iqlaaع through its implementing partners and market sector actors, will offer bundled support in forms of technical assistance and grants as the following:
- Formalization
- Start-Up Funding
- Business Growth
- Innovation & Scale
- Technology Integration
These interventions will achieve Iqlaaع’s main outcomes:
- Increase sales and revenues for MSEs through access to markets and business
- opportunities.
- Create new employment and self-employment opportunities for women, youth, and persons living with disabilities.
- Increase the number and quality-targeted products and services offered by business service providers.
- Support growth-oriented non-formal business to formalize.
Introduction
Access to suitable and appropriate finance (debt, equity and hybrid) plays an integral role in enterprise formation, development, and ability to formalize. MSEs represent the largest number of formal enterprises that seek finance. Informal businesses, who are potentially larger in number than formal micro and small enterprises, also represent a potential driver for economic growth and employment generation. MSEs are the backbone of a strong economy and create jobs for millions of people. Their capacity for innovation and their ability to adapt to an ever-changing business environment makes them a vital building block for economic growth and prosperity. MSEs are of particular importance in Jordan, forming around 99.6% percent of the formally registered companies in Jordan.
Despite their substantial economic value, Jordan’s MSEs face many challenges, including legal and regulatory issues, slow technology adoption, and poor financing options. The lack of access to suitable financial products is hindering the growth and expansion of MSEs where a great portion do not have a banking relationship and hard access to credit. Securing formal financing often requires MSEs to undergo long and tedious procedures, causing many to resort to informal funding channels – i.e., borrowing from relatives or friends.
In the Iqlaaع program, access to finance plays a central role and this is where the focus of Expectation State falls. Expectation State is an employee-owned business that works with governments, investors, donors, intermediaries, family offices, startups, multinationals, and communities to deliver growth. Under Iqlaaع, Expectation State will provide technical knowledge and skills primarily related to improving the access to finance ecosystem to meet the needs of MSEs in Jordan.
The access to finance sector in Jordan is considered one of the most advanced sectors in the region. In 2017, the Central Bank of Jordan (CBJ) issued the National Financial Inclusion Strategy (NIFS) 2018–2020, which aimed to enhance financial inclusion, with an objective to improve SMEs access to finance through microfinance and digital financial services, as well as to promote financial literacy and strengthen financial consumer protection. According to the CBJ Financial Inclusion Report, the NFIS succeeded in enhancing financial inclusion in Jordan to reach 50%, and reducing the gender gap to reach 29% at the end of 2020. The CBJ working closely with the ecosystem partners worked to improve the legal regulatory framework to expand access to financial services and increasing active usage.
In 2018, the CBJ issued new regulations to govern the Venture Capital Industry in Jordan by issuing the Venture Capital (VC) Regulations No. 143 of the Year 2018. These regulations allowed the establishment of VC funds in Jordan according to international good practices. Additionally, in 2018 Jordan launched the Regulatory FinTech Sandbox with an objective to encourage competition and innovation by utilizing technological advancements by introducing financial tools that meet the needs of SMEs in Jordan.
More recently, the CBJ issued the Finance Companies Regulation No. 107 of the year 2021 to regulate and supervise the operations of all companies engaging in financing activities, including microfunding, crowdfunding, leasing and factoring. The new Regulations has given existing finance companies two years to adjust their status in line with the Regulations’ provisions.
Despite all of these efforts and interventions by the government, MSEs are unable to capture the full potential of accessing innovative funding such as microfunding, leasing, factoring, equity finance or insurance. The reasons for this include regulatory barriers as well as obstacles on both the supply and the demand side.
Objectives of the Assignment
The assignment aims to assess the regulatory environment governing the access to finance sector in Jordan with objectives to identify opportunities to introduce innovative financing tools that meet the needs of MSEs and bridge the financing gaps.
The assignment is expected to be delivered by working closely with the CBJ and the ecosystem market players including but not limited to the banks, microfinance institutions, crowdfunding and leasing companies, in addition to financing institutions that are providing innovative financing tools such as factoring and reverse factoring.
Roles and Responsibilities
The consultant(s) will be responsible for the following main activities:
General
- Identify and review the relevant laws, regulations, policies and instructions in regards to the access to finance sector in Jordan, including but not limited to Finance Companies Regulation No. 107 of the year 2021, Open Finance Instructions No. 12 of the year 2022, Digital Banking and others. In addition, identify the reasons behind the government’s issuance of the identified laws, regulations, policies and instructions; and what are they meant to achieve (i.e. economic growth, tax revenues, unemployment, exports, etc)
- Identify opportunities for introducing new innovative financing solutions and tools in Jordan including reverse factoring / supply chain finance, blended finance, embedded finance, and other possible solutions that are meant to address nation-wide challenges such as economic growth, unemployment, exports, etc.
- Identify the main legal and regulatory challenges that might hinder the development of innovative financing tools in Jordan, and what are the challenges that these innovative tools will address and/or solve.
- Identify and discuss main legal and regulatory requirements and challenges for introducing Reverse Factoring – Supply Chain Finance and crowdfunding based on the applicable laws.
- Provide policy recommendations to allow the introduction of innovative financing solutions and tools in Jordan including reverse factoring / supply chain finance, blended finance, embedded finance, and other possible solutions.
- Facilitate policy advocacy consultation sessions with ecosystem market players.
- Assess the impact (both positive and negative) of the newly enacted Finance Companies Regulation No. 107 of the year 2021 and the Open Finance Instruction No. 12 of the year 2022 on the current activities implemented by financing institutions in Jordan including leasing companies, crowdfunding platforms and financial institutions that provide leasing and factoring services.
- The impact of the newly enacted Finance Companies Regulation No. 107 of the year 2021 and the Open Finance Instruction No. 12 of the year 2022 on the beneficiaries of the services provided by the affected companies under this law.
- The consultant is expected to identify other institutions that extend, directly or indirectly, finance to formal and informal businesses including but not limited to Agriculture Credit Corporation and Cities and Villages Development Bank. The consultant should assess their mandate, laws and policies and identify opportunities and recommendations on how they can to introduce innovative and alternative financing tools.
- The Consultant is expected to work closely with other donor funded projects who are focusing on this sector, namely the Innovating access to finance for micro, small and medium-sized enterprises (MSMEs) GIZ I-FIN, and to build on their existing efforts.
- The consultant is expected to review and build on the recommendations of existing reports, including but not limited to the Financial Sector Assessment Report developed by ES and Financial Inclusion Diagnostic Study 2022.
Microfinance
- Assess the impact of the newly enacted Finance Companies Regulation No. 107 of the year 2021 on the Microfinance Sector and its relation to the Microfinance Companies Regulation No. 5 of 2015. This should include but not be limited to: the ability of MFIs to comply with the new regulations, sales tax implications on loan agreements, MFIs ability to introduce innovative tools and expand its customer base, and MFIs ability to raise finance from local and international sources.
- Assess the potential impacts (both positive and negative) of the new regulations on MSEs.
- Conduct KIIs and FGDs with Tanmeyah, MFIs and MSEs. The main purpose of these KIIs and FGDs is to better understand the main challenges facing the MF sector in Jordan and limiting the ability of MFIs to lend and the MFIs to access affordable lending. (MSEs should include women, youth and PLWDs owned MSEs)
- Provide policy recommendations and facilitate discussions with the CBJ and other relevant stakeholders.
Crowdfunding
- Assess the impact (both negative and positive) of the newly enacted Finance Companies Regulation No. 107 of the year 2021 on existing financing institutions who are providing crowdfunding (Liwwa, Zoomaal, Beeezcrowd, in addition to others). This should include but not be limited to: their ability to comply with the new regulations, ability to offer different financing options (equity and loans), ability to raise finance from local and international sources, their ability to offer their services according to international good practices.
- Identify opportunities and challenges in the sector.
- Conduct KIIs and FGDs with Liwwa, Zoomaal, Beeezcrowd and others). The main purpose of these KIIs and FGDs is to better understand their finance model, the previous experience in the Jordanian market, and what challenges/opportunities they see from the newly enacted regulations. In addition to that, to learn more information about their investment/lending portfolio, the main targeted group and any reported impact achieved by the MSEs that came as a result of the funding they received, and ensure to also include questions related to women, youth and PLWDs owned MSEs.
- Assess the regulations with respect to international good practices offering applicable/comparable models that are implemented elsewhere. Countries/jurisdictions of good practices are to be identified in close collaboration between the consultant ES and MC teams.
- Provide policy recommendations and facilitate discussions with the CBJ and other relevant stakeholders.
Reverse Factoring – Supply Chain Finance
- Identify the minimum requirements and challenges, according to the Finance Companies Regulations No. 107 of 2021, to introduce reverse factoring – supply chain finance.
- Assess the regulations with respect to international good practices offering applicable/comparable models that are implemented elsewhere. Countries/jurisdictions of good practices are to be identified in close collaboration between the consultant ES and MC teams.
- Identify existing banks and financial institutions that offer supply chain finance, and provide details about the current process, requirements and eligibility criteria for both the supplier and buyer, in addition to identifying challenges and opportunities.
- Conduct KIIs and FGDs with banks and financing institutions to assess the market to better estimate the current and/or expected market size, and their interest in providing such solutions in the future, and ensure participation and questions related to women, youth and PWLDs owned MSEs.
International Benchmarking
Benchmarking is becoming a central instrument for providing guiding principles to introduce or improve areas of economic interventions. It provides similarities and differences between one country and another and suggests new approaches and lessons learnt to overcome the challenges faced by any country. International benchmarking reflects that under the right conditions; comparison can be an important driver of performance. Benchmarking shall be done against relevant countries and internationally successful performers to identify good practices. Under this assignment, consultant is expected to:
- Identify 4 countries/jurisdictions that present international and comparable good practices in implementing crowdfunding platforms and supply chain finance.
- Provide benchmarking analysis between the selected countries and applicable laws in Jordan.
- Provide lessons learned from the selected countries and provide recommendations on what to be considered by the Jordanian policy makers.
- Expose areas where improvement is needed and reveal underlying problems of the Jordanian financial sector key players in the areas mentioned in this SOW.
- Provide best practices related to inclusion of women, youth and PLWDs owned MSEs in the access to finance sector for Jordan to contextualise and learn from
- Based on the benchmarked countries that have shown to implement best practices, identify the economic impact for the adoption of the alternative financing tools (SCF, Crowdfunding, etc)
- Provide policy recommendations as relevant as identified in this SOW.
Women, Youth and Persons with Disabilities (PWD)
- The unique needs of women, youth and PLWDs shall be taken into consideration in all the tasks mentioned in this SoW and wherever relevant (i.e. policy mapping and identification of challenges and impacts, policy recommendations, specific preferential treatment in the current and/or financial solutions to be suggested, etc). Consultations (KIIs, FGDs) with the MSEs will include representation of women/youth/PLWDs.
Implementation and Deliverables
Activity 1: List of the current applicable laws, regulations and policies related to the areas identified in this SoW. This deliverable should also identify the targeted group and beneficiaries of each law, regulations and other policies.
LOE: 2
Est. Completion Date: 1 week from the kickoff meeting.
Deliverable: Word Document of the activity details.
Activity 2: Identify 4 countries/ jurisdictions that present international good practices that are comparable to Jordan in implementing crowdfunding platforms and supply chain finance. This deliverable should be implemented in close coordination with ES and MC teams. International good practices outline and comparison against the current applicable laws, regulations and policies
LOE: 2
Est. Completion Date: 1 week from the kickoff meeting.
Deliverable: Word Document of the activity details.
Activity 3: Impact Assessment of the new regulations on:
- Microfinance Sector
- Institutions providing Crowdfunding
- Institutions providing Supply Chain Finance Services.
- Institutions provided Leasing services
- Any other institutions that may be affected by this new regulation.
This deliverable should cover, but not limited to:
- The ability of financing institutions identified in this SOW to to comply with the new regulations and their sustainability of serving their beneficiaries.
- Tax implications on financing agreements
- Introduce innovative tools and expand its customer base
- Raise finance from local and international sources.
- Their ability to offer their services according to international good practices.
The assessment should also cover the impact of the new regulations on the Microfinance Sector, MFIs and MSEs, and its relation to the Microfinance Companies Regulation No. 5 of 2015 with against the previous effective law.
LOE: 15
Deliverable: Within 4 weeks from the kickoff meeting.
Deliverable: Word Document of the activity details.
Activity 4: Conduct international benchmarking assessment between the pre-identified 4 countries/jurisdictions with the Jordanian applicable laws and regulations in relation to MFIs, crowdfunding, supply chain finance. This deliverable should identify lessons learned to be considered by the policy makers in Jordan.
LOE: 5
Est. Completion Date: 4 weeks from the kickoff meeting
Deliverable: Word Document of the activity details.
Activity 5: Conduct KIIs and FGDs to be conducted with different stakeholders and to discuss the different topics as identified in the SOW.
LOE: 7
Est. Completion Date: On going – During the implementation period.
Deliverable 1 (Before the KIIs and FGDs): Interview guide, questionnaire or any other tool that will be used to be revised and approved by ES.
Deliverable 2 (After the KIIs and FGDs): meeting notes, attendance sheets
Activity 6: Develop a policy recommendation document based on the assessment of the applicable laws and regulations and on the international benchmarking analysis.
LOE: 3
Est. Completion Date: Within 5 weeks from the kickoff meeting
Deliverable: Word Document of the activity details.
Activity 7: Identify opportunities for introducing new innovative financing solutions and tools in Jordan including reverse factoring / supply chain finance, blended finance, embedded finance, and other possible solutions, according to the applicable laws and to the benchmarking assessment.
LOE: 2
Est. Completion Date: Within 6 weeks from the kickoff meeting
Deliverable: Word Document of the activity details.
Activity 8: Facilitate discussions with policy makers including but not limited to the CBJ.
LOE: 5
Est. Completion Date: Within 6 weeks from the kickoff meeting
**Deliverable:**meeting notes, attendance sheets
Activity 9: Final Report
LOE: 2
Est. Completion Date: 6 weeks from the kickoff meeting
Deliverable: Word Report
Total: 45 Days
Minimum Qualifications
- A degree in finance, law, economics, business administration, entrepreneurship, or related discipline, or equivalent related experience. Master’s is preferable.
- 10 years’ legal and regulatory experience in the financial services sector, financial inclusion, MSE access to finance and digital financial services.
- Experience with formal and informal finance.
- Experience in developing and implementing projects/programs around MSMEs and MSME finance is a plus.
- Experience or relationships working with Development financial institutions, banks, investor institutions and/or other similar financial service providers serving MSMEs in Jordan.
- Experience in supporting the government of Jordan in drafting regulations.
- Previous Market systems development experience is an asset.
- Demonstrated experience in managing donor-funded projects, with experience in result framework and reporting is an asset.
- Demonstrate a track record of developing, delivering and managing consultancy assignments.
How to apply
Submission of Application
Interested applicants are requested to submit a cover letter, CV(s) and financial proposal (daily rate) to at [email protected] using the subject “STTA – Regulatory Framework A2F Assignment ” no later than the 2nd of March 2023