From Challenges to Opportunities: The Essential Role of MSMEs & Innovative Financing Solutions

The Critical Role of MSMEs in Jordan and the Importance of Nurturing Them

With 99.5%[1] of enterprises in Jordan classified as MSMEs, their contribution to the Jordanian economy is unparalleled. These businesses form the backbone of economic and social development, providing over 60%[2] of the total workforce, with a contribution of 40%[3] to the GDP. MSMEs offer numerous employment opportunities, uplift local communities, promote balanced income distribution, and showcase innovative problem-solving approaches.

Given that our economy relies heavily on MSMEs, nurturing these enterprises is vital for several reasons—most notably, driving economic activity and growth and fostering resilience against regional and international shocks. While the past 15 years have seen a surge of startup enthusiasm, leading to a rapid increase in acceleration programs, investments, and ecosystem-building events, there remain significant missed opportunities and gaps. Addressing these gaps can further stimulate economic growth and strengthen the overall business cycle.

Challenges in MSME Financing: Working Capital and Supply Chain Financing

Micro enterprises, small enterprises, and medium enterprises in Jordan have borrowing rates of 5.7%, 17.2%, and 18.0%[4], respectively, where small and medium enterprises borrow almost exclusively from banks. This brings us to our main issue of MSME working Capital Financing: One of the most significant challenges MSMEs face is working capital financing, which is the availability of cash for a business to safely spend on daily operations. This includes liquid assets or assets that can be quickly converted into cash. 

Due to limited resources and unappealing loan amounts ([5]mostly ranging from roughly JOD 10,000 to JOD 100,000) MSMEs often struggle with liquidity as these amounts are sometimes too high for MFIs and too low for banks, hampering their ability to expand or even provide their basic products and services. Additionally, MSMEs typically don’t have sufficient collateral, and even when they do, it is often unregistered, which, in the eyes of financiers, will make these businesses seem riskier due to perceived instability and less experienced management.

Consequently, MSMEs are frequently deterred from applying for bank loans because of high interest rates and unfavorable terms, making it difficult for them to scale up. Instead, they may rely on payment terms negotiated with their buyers or suppliers, allowing some flexibility in cash flow. However, these arrangements can pressure both parties, as suppliers are typically offered 90-day payment terms but find it challenging to finance their working capital while awaiting payments from the buyers. This dynamic often results in businesses excluding MSMEs from their portfolios—causing losses for both buyers and suppliers.

This situation requires continuous support to help MSMEs overcome hurdles, progress to the next stage, and contribute meaningfully to the economy. Fortunately, Jordan's regulatory framework encourages a digital economy, reducing transaction costs and presenting opportunities for innovative financial solutions.

Exploring Opportunities: Digital Innovation and Supply Chain Financing

The current environment enables us to explore innovative approaches to financial management and technology. Digital advancements can improve the efficiency and accessibility of financial services while managing risks to banking institutions. Leveraging these innovations ensures that we can capitalize on digital transformation while maintaining the banking sector's stability.

This is where supply chain financing fits in, supply chain financing offers MSMEs an alternative path to managing their working capital. Initially implemented internationally, supply chain financing has evolved into a powerful tool for MSMEs as it allows businesses to leverage the creditworthiness of their larger trading partners, enabling them to access financing based on unpaid invoices. This financing model helps MSMEs maintain liquidity without resorting to expensive traditional loans.

Jordan has taken significant steps to promote supply chain financing. One such step was the introduction of the Call Registry, which enables banks to document commercial papers digitally mitigating the risk of fraud and enhancing transparency. The development of digital infrastructure, including the activation of digital signatures, has created a robust foundation for supply chain financing to thrive.

This progress has also been facilitated by Jordan's innovative startups, which have led the way in creating solutions tailored to local and regional markets. These startups, deeply embedded in Jordan's entrepreneurial ecosystem, play a crucial role in ensuring that supply chain financing meets the needs of MSMEs and fosters economic growth.

Corporate Challenge in Supply Chain Financing

In collaboration with GIZ, JoPACC launched a corporate challenge to address supply chain issues affecting MSMEs. Among the many participants, Shadi Abu Mathkour’s Credit Plus, a JOIN Fincubator alumni, stood out with an innovative proof of concept. His solution was developed in partnership with three major banks in Jordan: Jordan Kuwait Bank, Housing Bank, and Jordan Islamic Bank. What sets Credit Plus apart is its seamless integration with these banks, effectively eliminating regulatory and compliance costs and making it both feasible and affordable for the Jordanian market.

This case study illustrates how Jordanian innovators are using supply chain financing to create win-win situations for buyers, suppliers, and banks, proving the transformative power of local solutions.

Reverse Factoring: Enhancing Supply Chain Efficiency

Reverse Factoring represents one of the most innovative implementations for supply chain financing. Unlike traditional factoring, where suppliers “sell” their existing invoices to a third party (the factor) for cash and the buyer pays the factor, reverse factoring is initiated by the buyer to enable his suppliers to submit their invoices to a bank for financing. The bank, leveraging the buyer’s strong credit profile, discounts the invoices and provides the supplier with the necessary funds upfront.

This model benefits all parties involved. The supplier receives the liquidity options needed to maintain cash flow, the buyer enables his suppliers to keep their business running, and the bank receives his commission from early payments and secures invoices as “collateral” while acquiring new clients. 

Reverse factoring enhances MSMEs' financial inclusion, expands their access to finance, and fosters broader economic participation.

JoPACC’s Role in Driving Financial Innovation

At JoPACC, we pride ourselves on being a central player in Jordan's financial ecosystem. Our established relationships with local banks allow us to offer a diverse range of financing options tailored to MSMEs' needs. By collaborating with institutions such as the GIZ, EBRD, and many others, we foster innovation while adhering to international standards.

In addition to facilitating local solutions, JoPACC also supports capacity building in the banking sector. By enrolling banks in multiple foundational and advanced courses offered by FCI, the global representative body for factoring and financing open account domestic and international trade receivables, we are equipping them with the tools and knowledge needed to navigate the complexities of international supply chain financing practices. This training empowers Jordanian banks to implement best practices learned from other countries, further advancing the local economy.

Future Vision: Unlocking Opportunities for MSMEs

Looking forward, we envision continued growth in digital finance solutions and supply chain financing in Jordan. The digital economy will play an increasingly important role in overcoming traditional barriers to MSME financing, with fintech innovations driving broader financial inclusion. Sectors such as renewable energy, agriculture, and technology are particularly ripe for MSME expansion, provided they have access to the necessary financial tools.

JoPACC remains committed to this transformation. We will continue to support MSMEs, banks, and stakeholders by facilitating access to advanced financial tools, promoting best practices, and fostering meaningful collaborations. Together, we can bridge existing gaps, unlock new opportunities, and drive sustainable progress for Jordan’s economy.