High-cost financing key hurdle to industrial sector, say stakeholders

24-05-2022 10:05 AM

Ammon News - High-cost financing is a key hurdle facing the Jordanian industrial sector and that accessing low-cost financing would enable it to flourish in a world where prices and operating and production costs have soared, according to industrialists and economists.

In interviews with the Jordan News Agency (Petra), industrial stakeholders and experts called for additional financing programs for small- and medium-sized industries, which they said make up about 90 percent of the total industrial sector.

According to the Financial Stability Report issued by the Central Bank of Jordan, local banks reject an average of 16.2 percent of financing applications submitted by small and medium companies. The rejected borrowing applications submitted by this type of businesses account for about 77.7 percent of total applications by all types of companies.

Recently, the World Bank has agreed to grant Jordan a loan of $85 million to finance an industrial sector development fund. It is hoped that this financing tranche will serve more than 500 companies to advance their business and promote their products.

Vice President of the Jordan Chamber of Industry (JCI), Muhammad Walid Al-Jitan, revealed that the credit loaned to the industrial sector did not exceed 12 percent of the total corporate credit facilities provided by banks in 2021.

Al-Jitan, who is representative of the food industry sector in the chamber, called for strategies and plans to support and finance small and medium businesses, which he described as a major driver of entrepreneurship and innovation.

"If we look at major international companies, we find that they were originally small entrepreneurial projects that later turned into major players with huge stakes in global markets," the JCI vice president added.

Detailing the obstacles that small and medium companies face when pursuing financing, Al-Jitan said that some banks refuse to finance these businesses due to the lack of sufficient guarantees and their failure to provide historical financial records and budgets for more than a year.

On the other hand, business owners are reluctant to pursue bank financing as a result of high interest rates, tight grace and repayment periods, and the lack of collateral, he explained.

For his part, Saad Yassin, a member of the Board of Directors of the Amman Chamber of Industry, considered that the ease and availability of financing is a key criterion for evaluating the business environment in any country, warning that the high cost of financing by more than 10 percent undermines the competitiveness of the industry and the feasibility of investment.

Yassin said that some of the big companies, with global branches, went bankrupt due to high financing costs and their failure to earn profits that would enable them to survive in the market and maintain their employment.

The head of the Society of Industrial Engineers, Laith Abu Hilal, indicated that price jumps, supply chain disruptions and higher shipping costs all require raising the financing ceilings for industrialists.

Abu Hilal said that the financing programs introduced by the Central Bank are very small, compared to the actual need.


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