As part of enhancing the vision of the Central Bank of Jordan to maintain monetary and financial stability, contributing to economic and social development in the Kingdom, the amended Central Bank Law of 2016 reinforced the Central Bank’s role in ensuring financial stability as a core objective. To achieve this, the law expanded the scope of the bank’s duties to include supervision and oversight of any financial institution under its regulation to ensure the soundness of their financial position. The law also granted the necessary powers to strengthen governance within these institutions. Prior to this, the Microfinance Companies Regulation No. (5) of 2015 was issued, which served as the legal reference for licensing and overseeing microfinance companies operating in the Kingdom.
The regulation ensures that microfinance companies adhere to industry best practices, protect financial consumers, and maintain sustainability and sound governance. In this framework, the Central Bank issued a set of instructions, including:
Microfinance Licensing and Presence Instructions No. (62/2016):
These instructions serve as an executive tool for the Microfinance Companies Regulation, establishing the legal and regulatory foundation for licensing microfinance companies. Key aspects include licensing requirements, microfinance standards, Islamic finance, and both local and international presence.
Financial Consumer Protection Instructions No. (15/2018):
These instructions aim to strengthen customer protection principles and ensure transparency. They focus on educating microfinance clients about their financial rights, potential risks, and benefits of financial products, and preventing over-indebtedness. The instructions encourage the sector to balance social performance with financial sustainability. The Central Bank is a leader in issuing such guidelines in the Arab and regional context. Key elements include product design, credit policy, responsible pricing, risk of over-indebtedness, transparency, data protection, fair customer treatment, and a complaints handling mechanism.
Anti-Money Laundering and Terrorism Financing Instructions for Microfinance Companies No. (8/2020):
These instructions act as an executive tool for the Anti-Money Laundering and Terrorism Financing Law. They set procedures for microfinance companies to prevent their activities from being exploited for illicit purposes. Key elements include simplified and enhanced due diligence, identifying the client and the real beneficiary, risk management, training, and reporting suspicious transactions related to money laundering and terrorism financing.
Corporate Governance Instructions for Microfinance Companies No. (10/2020):
These instructions establish governance standards for microfinance companies. They outline the roles and responsibilities of the board of directors, committees, Shariah supervision, general managers, and senior management, as well as requirements for their qualifications. The instructions emphasize shareholder rights, transparency, and disclosure.
Internal Control and Oversight Systems for Microfinance Companies No. (11/2020):
These instructions complement the governance instructions and aim to reinforce governance and internal oversight systems in microfinance. They define the requirements for internal control systems, as well as the roles and responsibilities of the board and senior management. Key areas include internal and external auditing, risk management, compliance monitoring, financial and accounting systems, information management, and security requirements.
To further strengthen its oversight of the microfinance sector, the Central Bank issued the Microfinance Companies Regulation No. (107) of 2021, which came into force on 30/5/2020. Under this regulation, all companies engaged in microfinance activities, including those that follow Islamic finance principles, are subject to licensing and oversight by the Central Bank. This includes companies involved in the following activities:
- Microfinance
- Mortgage finance
- Factoring
- Leasing
- Peer-to-peer lending
- Mortgage refinancing
The reasons for issuing the Financing Companies System:
The aforementioned system aims to form a unified legislative framework for financing companies that will be subject to the supervision of the central bank. This ensures the provision of an institutional framework and the establishment of clear and objective standards for licensing these companies. It also aims to set high standards for professional practices. The inclusion of these companies within the formal financial sector will help reduce shadow banking and regulatory arbitrage among companies engaged in financing activities. This will contribute to creating a fair competitive environment and ensuring the efficient and responsible growth of these companies. It will meet the financing needs of individuals as well as micro, small, and medium-sized enterprises, creating more job opportunities. Additionally, it will positively impact customers by protecting them from exploitation and ensuring transparency and fairness in their dealings.
The conditions and requirements for licensing specified in the system:
The system defines the conditions and requirements for licensing, including the minimum capital for each financing activity, which is aligned with the business model of the company engaging in this activity and ensures its sustainability and continuity. The system also outlines the suitability requirements and standards that must be met by the founding members, the board of directors, and the senior executive management.
The central bank will continue to work on developing legislation and regulations, establishing supervisory frameworks that align with international standards and best practices. This will help improve the spread of financial services, encourage innovation in these services, ensure they are provided with high quality and reasonable costs, and contribute to the protection of clients while promoting responsible financing. This will be in line with a comprehensive national vision, ensuring the safety and efficiency of the financial sector.