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Amman: The Jordanian government will cement the role of
Islamic banking in the kingdom and establish a leading regional center for Islamic finance.
The decision is taken in the wake of rapid growth of
Islamic banking in the country, due to laws that organize the work
of takaful insurance and sukuk, KFH-Research said in
a report.
The assets of the four Islamic banks operating in Jordan is $4.6
billion and forms 5 percent of total banking assets. They achieve
annual growth of 13 percent and are better than traditional banks
in growth of deposits and financing. This reflects high demand for
transactions; especially that they offer various unique services
and products.
In addition, the report mentioned that Islamic
insurance companies are still performing poorly, but after
receiving a nod from the government regarding the takaful
insurance, the performance is expected to get better.
The
Jordanian government plans to issue sukuk to face the deficit in
budget, after a legislation that organizes that matter received a
nod. The legislation allows the trading of sukuk in Amman bourse.
Islamic finance in Jordan is still at a very early stage of
development. The Islamic finance started in the country when the
Banking Law 13 was endorsed in 1978 which has allowed the
establishment of an Islamic bank. Since then, the first Jordanian
Islamic bank, the Jordan Islamic Bank for Finance and Investment (
JIB ) was set up.
Even though it was established as a member of
the Saudi -based Dallah Al Baraka network of Islamic banks, 90
percent of its capital was owned by the Jordanian citizens. By
1986, it had become the sixth largest Jordanian bank in terms of
total assets and had financed numerous projects.
This indicates that Islamic banking
was welcomed by the Jordanian citizen which subsequently led to
the introduction of the second Islamic bank, the Islamic
International Arab Bank, in 1998.
As at end-2011, the total assets of Jordan’s Islamic banks stood
at JOD3.25 billion (USD 4.58 billion) with 13.13 percent y-o-y
growth (2010: JOD2.87 billion).
Currently, there are 4 Islamic
banks operating in the country. In addition to the Islamic banks
mentioned above, two other Islamic banks operating in Jordan are
Jordan Dubai Islamic Bank which was established in 2010 and Al Rajhi Bank which set up its branch in 2011.
Presently, Jordanian
Islamic banks hold approximately 4.85 percent of the country’s
banking sector total assets.
Based on a compound annual growth
rate (CAGR) of 18.3 percent between 2009 and 2011, Islamic banking
assets in Jordan are expected to grow from JOD3.25 billion as at
end-2011 to approximately JOD 3.84 billion by the end-2012,
accounting for more than 5.4 percent of the country’s banking
sector total assets.
Total deposits and total
financing of Islamic banks in Jordan have increased by 16.35
percent y-o-y and 15.58 percent y-o-y respectively as at end-2011.
This indicates that Islamic finance is gradually being accepted in
Jordan.
In fact, it performs better than its conventional
counterpart where conventional loans and advances and deposits
grew at less than 10 percent per annum.
In terms of products and
services, Jordan Islamic Bank offers a wide range of financial
products and services to both individuals and corporations.
The
services include Murabahah and Ijarah Muntahia Bithamleek as well
as some investment products such as Musharakah and Mudarabah.
Other well established Islamic banks the likes of Islamic
international Arab Bank, Al Rajhi Bank and the Jordan Dubai
Islamic Bank offer services such as home and car financing as well
as Musawwamah and Murabahah.
The Jordanian Islamic capital markets remain relatively nascent.
Ijarah has been the main principle for fund raising activities. In
2011, Al Rajhi Cement Co. issued the first sukuk out of Jordan
which was based on ijarah principle worth $119.6 million.
The
country is mulling tapping the sukuk market to bridge its budget
deficit with debts worth $3.7 billion maturing 2012.
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