With Sharia-compliant financing, small- and medium-sized tourism enterprises in Jordan can more easily access bank loans that are critical to economic growth.
Every year, millions of travelers from across the world are drawn to Jordan’s beautiful attractions. Visitors explore the pre-historic city of Petra, float in the Dead Sea, and hike in the Wadi Rum desert. However, despite efforts to strengthen perceptions of its tourism, Jordan’s competitiveness in the industry has suffered since 2012, in large part due to regional turmoil and political instability. Fewer visitors are entering the country, several hotels in Petra have closed, and fewer tour operators and car rental companies are in business. The minister of tourism and antiquities noted in 2015 that the country stood to lose $750 million in tourism revenue in one year as compared to 2014.
Financial constraints are at play here. Tourism is one of the country’s most important socioeconomic sectors, contributing close to 11 percent of the gross domestic product. A weakening sector thus poses a significant threat to Jordan’s economy. Increasing economic growth and job creation through tourism is critical to the country’s future. Owners of small- and medium-sized tourism enterprises are trying to expand and flourish under these circumstances, but they are facing a major obstacle: They cannot obtain bank loans.
Historically, many tourism businesses in Jordan have not had access to financial loans because banks consider the sector to be a risky investment. The ability to repay a loan is affected by the country’s political and economic situations, which fluctuate. Additionally, many business owners face the challenge of finding loans that comply with their religious beliefs. Approximately 92 percent of Jordanians are Muslim; Islamic tenets prohibit them from dealing with interest (“riba” in Arabic). Some Muslims in the tourism industry will accept commercial loans, but many will not. And for those that would accept commercial loans, they still struggle to find a bank willing to lend to tourism businesses.
With the goal of strengthening Jordan’s tourism sector and economy, USAID’s Building Economic Sustainability through Tourism (BEST) program, implemented by Chemonics, is working to develop broader tourism financing mechanisms. The program addresses issues such as the lack of collateral, high interest rates, and the seasonality of tourism operations. BEST has also established partnerships with commercial banks, making more types of lending available to tourism businesses.
One exciting new type of lending came from a recent partnership with the Islamic International Arab Bank (IIAB) to offer Sharia-compliant financing, including technical assistance to small- and medium-sized tourism enterprises. This partnership was established to address findings from an assessment conducted by BEST in 2015, in which tourism businesses requested Islamic Sharia-compliant products offered by Islamic banks.
The IIAB has been in operation for 19 years and is one of the leading Islamic banking institutions in Jordan and the Middle East. It is a Sharia-compliant financial institution, meaning that in following Islamic Sharia law, the bank provides only asset-based financing, does not collect interest on loans, and does not offer interest on deposits. By providing new, Sharia-compliant loans to tourism businesses, the IIAB is filling a financing gap in Jordan’s tourism sector and is promoting tourism growth and expansion across the country. The previous lack of access to financial loans from religious and secular banks had severely hindered tourism businesses’ ability to invest in operations and expand.