Credit guarantees for private sector employment

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With this measure, the project sponsor Jordan Loan Guarantee Corporation (JLGC) is to set up a loan guarantee facility to explicitly promote employment in Jordan. The aim is to assume part of the default risk of loans to small and medium-sized enterprises (SMEs) by granting loan guarantees to partner financial institutions. This creates an incentive for financial institutions/banks to grant more loans to SMEs. Improved access to financing in turn means better opportunities for SMEs to invest, grow and create jobs. The promotion of new, formal and sustainable employment opportunities for people living in Jordan is an explicit aim of the measures. The granting of a loan guarantee is directly linked to the plausible expectation of the creation of new jobs at the borrowing company. In addition, a job creation bonus for SMEs, spread over a period of five years, is intended to provide an incentive not only to create new jobs, but also to maintain them in the long term. The bonus is only paid if a job has been verifiably created (periodically) and social insurance is provided. The aim is also to reach a broad spectrum, particularly those SMEs that do not yet have access to credit or do not have sufficient access to credit. A more proactive and new role for the JLGC as a point of entry for SMEs is planned. This means reversing the usual process (applying for a bank loan and then a JLGC loan guarantee). By providing a preliminary loan guarantee by the JLGC as a first step, SMEs should be strengthened in their bankability and the corresponding chances of subsequent financing from a bank. The incentive for banks is to simplify the selection process and thus lower transaction costs.