QSpeaking of Islamic Finance, you said in the past that sukuk will stimulate the development of capital markets in Jordan. Just about a month ago, Jordan's government raised almost $48 million in its first issue of a local currency sukuk. What role can Jordan play in the regional and global Islamic financial services industry?
ZF: Jordan was the first among all the Islamic countries that issued the principal of sukuk. Yes, we were late in developing the sukuk and making the market but this was due to the fact that we have to consider the financial market, Amman financial market, and legal consideration.
Now I cannot claim that we can be a leader in this, but we can be a very active player. For us to issue sukuk in large amounts to finance development projects - which I think is in mind for policy makers in Jordan, the fact is that we need private sector to participate in the development process. We need the private sector to undertake public investments. This is a way of reform. Islamic financing will come as a major source of financing for those projects. It is appealing for the public, it fits with the nature of the long-term development. Although it could be dealt well in the secondary market, so far I think we have taken a major step in issuing the recent. I think we will be able to also market it in the region in the future. I think this will help us.
The prospects are there. We have all legal requirements, everything is being done by the minister of finance in collaboration with the central bank, and Amman securities exchange. We are very hopeful that this will find its way in the market and it will become an instrument that is attractive to investors.
QOn a global scale, the Islamic finance industry sector has been growing steadily.
ZF: To be honest we are very small.
QEven though Islamic finance has been growing, it does not have the same scale as traditional finance on a global level. The last financial crisis, the subprime mortgage crisis in the U.S. - which then triggered a global financial crisis was mainly due to unethical practices. What could traditional finance learn from Islamic finances in terms of basic principals?
ZF.: The risks in the Syria Islamic financing is much less. We should encourage that and make sure everything is compliant with Syria through proper regulation based on Syria. On the other hand we have to make sure that traditional or what we watched or practiced in our day, in the financial industries should be re-examined and looked at. The situation in terms of regulatory framework is much different than 2008, it has changed. Compliance is becoming a key issue for all regulators and for even the banks. Transparency and good governance are also very important. Making sure that there are no potential conflicts of interest within the institution. All of these factors could contribute to a safe financial system. This is why we are watching regulation with basil 3 and basil 4 coming in terms of credit and capital adequacy and in terms of good governance, looking at what the board is doing, what the CEO is doing and so on. They are responsible even after they leave. It is becoming a very hard business.
Q Jordan’s banking sector sees about 25 competing groups, out of which the top 3 control about 40% of the market, while the smallest 10 control less than 10% of the market.
What are your thoughts on possible consolidation in the Jordanian banking industry?
ZF: We have given them incentives for mergers. As a regulator, I cannot force them to merge. I can create incentives for them to merge. The fact that although the structure of the financial sector, there is concentration and the others are small, is not in conflict with the fact that all these banks are enjoying a healthy financial position. Most of them have MPL very low, capital adequacy is very high, liquidity issue is very high. I have no legal power to force bank A to merge with bank C. This is subject of course, given our system of privacy. I think what we did when we introduced new principals of good governance we made full separation between ownership and management. We create in the future some appetite for mergers. That would be the natural evolution, I don't think any force would be successful, each bank has its own culture. We witnessed one bank HSBC when it was sold to Investment Bank, until now they haven't finished the merger, it takes time. I encourage and I offer compensation for cost of technology, cost of integration, but each one prefers to enjoy his own kingdom.
Q Financial inclusion is something you are a very strong advocate for both within Jordan, and the region. The Central Bank recently launched several forward-looking initiatives to promote much greater financial inclusion for vulnerable groups.
What should Jordan’s banks do to assist you in achieving greater financial inclusion in the country.
ZF.: Financial inclusion is the closest subject to my heart. I think to be more friendly to the people which is a very difficult task, they are friendly when they get in. I have to admit they are participating with me. For instance, a project for financial education in schools, which we adopted and is financed by not by the government but by the bankers. They are contributing and providing training and seminars for the public, for children, and for women. There is no single strategy by them, but again, what we are doing on payment systems, developing mobile payments, e-payments, moving towards education on digital banking.
I think bankers are becoming more aware of where we are heading. It’s a cultural thing, which I don’t expect it to bring fruits directly, it will take some time. My emphasis now is on education on the local community to make them aware, particularly women, of their rights in this society. Legal rights, the rights to go to the bank.
I was with my wife in London, in New Castle, I have an account, my wife wanted to open an account, they told her to get the consent of her husband. This was 30-40 years ago. Next week we have a conference in the dead sea on women's financial inclusion. We are very active on this, especially educational not regulation and exposing them to technology.
In the school now we are teaching financial education, we are one of the few in the world. We are teaching in the 6th, 7th, and 11th grades, we will go in all stages, but this is what we did over the past 3 years. We have trained people to demonstrate and create action.
In Jordan, studies show, we have 25% of adults over 15 are dealing with banks. The average in the world is 50%. We did this study here on the financial inclusion, on the people who were over 18 and it was 60% which is good. But the criteria is over 15 years old. The law will not allow people to open an account until they are 18, so they should be excluded from the study.
Q One year ago mid 2015 – in an interview given to Oxford Business Group you were quoted “Our monetary policy has been very skillful in balancing stability and growth objectives.” (He denies saying this)
For 2017 what will be the main pillars of balancing growth and stability in Jordan in your opinion?
ZF.: Ensuring of our monetary policy is always linked to stability – always. For growth, number 1 - stability does not conflict with growth. It is a cornerstone, a pre-condition for growth. What we are doing to encourage growth is to develop the financial sector. To provide financing for private sector. In the last year we have finished with establishing the first credit bureau in Jordan. Which will develop the credit market towards eligible borrowers who were facing difficulties in obtaining credit in the past. We are doing financial education, we are encouraging some companies to provide guarantees for credit to certain sectors. We are talking about encouraging through our policies, equity funds. We are talking to the world bank on establishing start-up funds for entrepreneurs, innovation, and technology.
We have been giving some priorities for private banks to provide credit for eligible sectors that will contribute to development like energy, renewable energy, tourism, industry, manufacturing, IT and trying to give them credit from the banks and get the banks to get liquidity from us at concessionary rates. Reducing the burden of long term projects. Now we are paying much attention to the exports and trying to support the long guarantee company with additional financing and additional capital that the banks are contributing to provide guarantees for credit for the exporters. Now in a volatile situation in the region, many insuring companies are refusing to re-insure in the region. We have to interfere here to help out. Now we are talking about how to clear this financial environment, that it is very friendly to the private sector without endangering our basic and prime objective of financial stability. We are here to maintain a situation where liquidity is there, the financial sector is in good health, and at the same time assist based on JD is still attractive. We are moving with ups and downs according to the international market, and according to the local requirements, and according to what we feel we have an open market that meets every month and discuss things and take the right courses.