Q. Who Benefit from Jordan Loan Guarantee Programmes?

JLGC’s guarantees are designed to benefit the SME’s in Jordan through impacting :  

1. The Banking & Financing Sector in Jordan under the Loan Guarantee Programme, to enable them to provide financing to SME’s with JLGC’s Guarantees.
    

2. The Jordanian Exporters & Business People through the Credit Guarantee Programme, to enable them to cover their commercial & political risks associated with trading both domestically and internationally.

Questions About The Loan Guarantee Programm

Q. Does The Corporation Grant Loans To Projects?

JLGC does not actually grant loans directly to projects, but rather facilitates the opportunity for the borrower to get the appropriate credit necessary for his project through Participating Banks at the prevailing interest rate. No extra cost is carried by the borrower as a result of JLGC guaranteeing their credit risks.

Q. What Are The Sectors Guaranteed By JLGC?

1.  Agricultural projects (fruits, animal husbandry and their products).

2. Industrial and service projects of all kinds.

3. Miscellaneous crafts (carpentry, blacksmithing, tire repair, turnery, etc.).

4. Miscellaneous services (tourism, information, education including schools and
  kindergarten, etc.).

5. Miscellaneous professions (medical doctors, lawyers, engineers, consultants,
   etc.).

6. Transportation sector including trucks, tanks, dump trucks, public service cars,
   and heavy-duty machinery.

7. Commercial sector, excluding real-estate and commercial speculations, trading    in shares and bonds, projects with no regular cash flows, and projects with no fixed location.

Q. What Are The Targeted Projects?

These are small to medium-sized projects operating in Jordan and owned by the private sector. Such projects need to be productive in nature with a labour force not exceeding 50 workers. They can be either new or existing projects undergoing expansion and development to increase their productivity.

Q. What Interest Rate Does JLGC Charge The Borrower?

JLGC does not charge the borrower any interest or commission. The lending bank charges the borrower the prevailing interest rate.

Q. Then, How Does The JLGC Benefit From The Guarantee?

One of the main objectives of JLGC is to encourage banks to lend to newly established, small to medium sized, industrial and service businesses or to facilitate the expansion of existing, similarly sized establishments. Because these projects are considered essential to the economy, this objective aims to enhance the sustainable economic growth in the Kingdom.

There is no doubt that making available the needed financing for targeted projects will contribute to the stability and development of these projects. This, in turn, will contribute by creating new job opportunities, save foreign exchange, support the economy, extend the customer base of banks, and make a qualitative change in the banking credit decision making by relying on the feasibility of the project and its related cash flows rather than on the availability of conventional collateral.

Q. How Is The Guarantee Process Performed? And What Is The Ceiling For Qualified Loans By JLGC?

In order to enhance the opportunity for small and medium-sized projects to obtaining the needed credit, JLGC guarantees 75% of the outstanding balance for all types of loans valued below JD 40,000. It also guarantees 50% of loans valued between JD 40,000 and JD 100,000 as well as partial guarantee of loans exceeding JD 100,000.

The loan application is submitted by the borrower directly to the bank, which studies the application in accordance with a set of standards and then routes it to JLGC for further study and final approval.

Q. What Are The Pre-Requisites For The Borrower Who Approaches The Bank To Make Use Of The Services Offered By JLGC?

The borrower is required to submit the following documents to the bank:

·All documents that prove the establishment of the project or the plan thereto.

·The economic feasibility study and cash flow analysis of the project to make sure that the borrower will be capable to repay the loan.

·The collateral available to the borrower.

·The insurance of the project and/or life insurance of the borrower.

Q. What Is The Role Of JLGC After Submission To The Bank?

JLGC encourages the bank to offer the necessary credit to the borrower regardless of the appropriate conventional collateral and to accept the available collateral depending on the economic feasibility of the project.

Q. What Is The Loan Period To Be Guaranteed By JLGC?

The loan period is either short or medium-term, not to exceed 6 years including the maximum grace period of one year. This period is determined according to the nature of the project, its life-time, its cash flows, and associated financial data. Repayment will be in monthly, quarterly, semi-annual, or annual installments according to the cash flow of the project.

Q. Does JLGC Guarantee Real Estate (Housing) Loans? And If So, Do Housing Loans Have The Same Lifetime As Ordinary Loans?

In line with the policy of encouraging commercial banks to extend low and middle-income people, loans for building, buying, or repairing a personal home, JLGC offers a guarantee through the following banks: Cairo-Amman Bank, Arab Land Bank /Jordan, Arab Banking Corporation/Jordan, Arab Jordan Investment Bank, Union Bank for Savings and Investment, and the Arab Bank, Jordan National Bank, and Bank of Jordan.

Housing loans are granted according to the following arrangements:

Maximum loan amount of JD 50,000.

JLGC guarantees 75% of the maximum loan amount.

JLGC might offer partial guarantee for those loans exceeding JD 50,000.

There should be real-estate mortgage and a proven source of income for the applicant.

The loan period is up to 15 years.

Q. What Are The Non-Eligible Sectors For JLGC Guarantees?

Import trade, commercial and real estate speculation, trading in shares and bonds, commercial businesses where a regular cash flow cannot be determined, refinancing of already outstanding loans, or loan rescheduling. Also non-eligible are those loans that do not conform with the general lending principles of commercial banks.

Q. What Are The Required Records And Documents From The Borrower To JLGC?

Financial data about the borrower.

Primary cash flow data and economic feasibility study of project.

Basic records and documents such as Professional license, Registration Certificate in the Trade Registry, Chamber of Industry Certificate, Chamber of Commerce Certificate, and lease contract.

Banks will assist borrowers in preparing the necessary data concerning their assets, liabilities, and cash flows if the borrower needs such assistance. In addition, JLGC through its Counseling Services Unit, assists the owners of targeted projects in preparing the economic feasibility study and cash flow analysis in order to facilitate and accelerate receiving the necessary credit.

Q. Are There Other Programmes Guaranteed By JLGC?

Craft Zone Programmes

In cooperation with the Industrial Development Bank, JLGC guarantees the risks associated with loans advanced to craftsmen working in the newly established craft zone in Aqaba. In addition, JLGC guarantees credit risks for all craftsmen projects in different parts of the Kingdom.

Public Car Replacement Programme

This is done within the following conditions:

·Maximum loan amount of JD 15,000.

·Maximum financing period of 50 months, including 2 month grace period.

·Acceptable guarantor with adequate income.

·Endorsed full-coverage car insurance policy.

Q. Is It Possible To Guarantee Imported Goods From Abroad?

It is possible to guarantee credit risks associated only with the purchasing of raw materials and equipment from abroad, which will be used in production. JLGC however does not guarantee credit used in importing finished goods for domestic consumption.

Q. Is It Possible To Guarantee Loans Used In Settling Outstanding Financial Liabilities To Banks?

JLGC has no interest in guaranteeing loans for settling outstanding financial liabilities, guaranteeing existing loans, or guaranteeing their extensions. It is possible though, to guarantee new loans for borrowers who are beneficiaries from outstanding loans, on a condition that such borrowers are on good terms with the bank, committed to their on time repayment, and capable of settling their liabilities.

Q. Who Are The Persons Covered By The Guarantee?

Any person or legal entity involved in a project in Jordan with a total private ownership.

Q. Is It A Requirement For The Borrower To Have A Personal Financial Contribution In The Project When He Applies For A Loan?

This matter is left to the discretion of the bank, which evaluates the application. Such a contribution differs among projects according to the type and nature of activity.

Q. Why Aren’t All Documents And Applications Directed To JLGC Rather Than The Bank?

JLGC, through its Counseling Services Unit, studies the project and helps the borrower prepare an economic feasibility study and cash flow analysis and then directs the study and associated documentation to the bank, thus enabling the borrower to receive the needed credit.

Q. What Are JLGC’s Sources Of Revenue?

JLGC receives revenue from its operational transactions, represented by guarantee fees charged to Participating Banks, and from the investment of its liquid funds.

Industrial Modernization Guarantee Programme

Q. What is the purpose of Industrial Modernization Guarantee
     Programme ?

Helping small and medium size industries obtain medium and long term credit facilities from local commercial banks through modern bank financing methods not depending on traditional guarantees and through the assistance of the Euro-Jordanian action for the development of enterprise .   

Q. Who benefits from this program ?

All existing and future enterprises in the private sector with employees between  5 and 250 persons that produce goods and services that complies with employee and environmental safety regulations.

Q. For What purpose are these loans guaranteed  ?

The loans may be for financing the existing or new enterprises’ fixed assets a certain percentage for the working capital

Questions About The Credit Guarantee Programme

Export Credit Guarantee

Q. What is Export Credit Guarantee?

Export Credit guarantee is an incentive for the encouragement and development of exports by providing insurance coverage to the exporters of national commodities and services who sell on credit terms against non-payment by their importers. Non-payment may be due to importer's insolvency, protracted default, non-acceptance of goods, economic and political conditions that are out of the exporter’s and importer’s control, or due to procedures undertaken by the authorities in the importer's country, which may prevent the exporter from obtaining his dues from the importer

Q. How Export Credit Guarantee Scheme was introduced and in which countries?

Since a long time, most of industrialized countries as well as developing countries recognized the importance of the promotion of their national exports. They established national export credit guarantee schemes that provide guarantee coverage for their exporters who sell on credit terms against non-payment by foreign importers. Such schemes Increase competitiveness through the offer of credit facilities to foreign importers without insisting on cash payment or confirmed LC opening. Exporters recognized the advantages of the export credit guarantee scheme and they do not export their products until they get coverage against commercial and non-commercial risks through their export credit guarantee schemes.

Q: What are the risks covered by the Jordanian export credit guarantee scheme?

A: The Jordanian export credit guarantee scheme covers the following commercial and non-commercial risks:

1. Bankruptcy or forced liquidation of the importer.
2. Failure of the importer to effect payment to the exporter despite the latter having met all his obligations.
3. Refusal or abstention of the importer to receive the shipping documents of the shipped goods in spite of the exporter's fulfillment of all his obligations towards the importer.
4. The cancellation of the import license by the authorities of the importer's state or its suspension, non-renewal, or their refusal to allow the goods into the state.
5. Seizure by the importer's state of the shipped goods or their detainment or confiscation.
6. Prevention, whether directly or indirectly, by the authorities of the importer's state or by the state through which payment shall be made, of the exporter obtaining his dues from the importer on the due date.
7. Taking any measures by the authorities of the importer's state against the importer that would result in failure or prevention of importer from paying his dues to the exporter such as, expropriation and nationalization.
8. Taking measures, whether based on a law, a decree, a regulation, or a decision that would fundamentally impede the ability to transfer the value of the shipped goods into the payment currency. These measures include refusing or delaying the approval of the transfer.
9. Wars and civil disturbances that would have directly lead to the importer's failure or delay in paying the amounts due to the exporter.

Q: What are the benefits and advantages of the Jordanian export credit guarantee scheme carried by JLGC for Jordanian exporters and producers?

This scheme offers the following advantages:

1. Prevention against non-payment risks, thus encouraging penetration into higher-risk foreign markets.
2. The credit guarantee cover assists the exporters to sell safely on credit terms, thus increasing their competitiveness through the offer of credit facilities to customers without insisting on cash payment or confirmed LC opening.
3. Helping the exporter in obtaining financing with more favorable conditions by discounting commercial papers while assigning the rights of compensation to the bank.
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4. Obtaining adequate compensation of the loss value.

Q: What are the benefits and advantages of the Jordanian export credit guarantee scheme carried by JLGC for Jordanian banks?

A. This scheme offers the following advantages:-

1. The bank does not bear any loss in case of any covered loss is realized, JLGC compensates the bank against realized risks up to 90% of incurred loss, and the insured exporter bears 10% .
2. The bank does not bear any responsibility in studying the credit assessment of the foreign importer as the case in ordinary loans, it is the responsibility of JLGC and the re-insurance company.
3. There would be no any chance for dispute regarding payment of compensation in case of any covered loss is realized, as the bank pays the value of shipped goods upon receiving a letter from JLGC states that the shipped consignment is eligible in accordance to the guarantee contract signed with the covered exporter. JLGC would issue such letter upon receiving a letter from the importer or local merchant states that he received the goods and undertakes to pay its value on due date in the account of the financing bank .
4. The financing bank has a very limited role in marketing, as the bank finances the exports covered by JLGC guarantee. In some cases, the bank advises his exporter or producer customers to cover their exports or local sales credit by JLGC guarantee.
5. The Jordanian banks can benefit from JLGC data base for the credit assessment of local merchants , gathering data at JLGC commenced more than 15 years ago. At the same time they could benefit from the database of the re-insurance companies JLGC dealing with.
6. Export Credit guarantee scheme helps the exporters to increase both their exports and local sales, thus they can fulfill their obligations towards the banks.

Q: Is there any need to consider covering exports under Irrevocable Letter of Credit?

A: An irrevocable letter of credit provides guarantee from the opening bank for receiving payment of exports bills provided the terms and conditions of the letter of Credit are strictly complied with. However, certain events of political nature in importer's country could prevent performance of sales contract or transfer of funds. In such circumstances, the export credit contract of JLGC provides the exporter protection against possible losses..

Q: What are the terms of payment in international trade and how does it relate to the risks?

A: Terms of Payment in international trade and the related risks:

• Irrevocable Letter of Credit (ILC)
  An undertaking by a bank issuing the Letter of Credit (the issuing bank) to pay the beneficiary of the credit a specified amount on submissions of stipulated documents in conformity with the terms and conditions of the credit.
Non-commercial risks
• Cash Against Documents (CAD)
  The process of delivering documents required by the importer to take possession of goods after receiving payment by the authorized bank to handle the documents. Commercial and noncommercial risks
• Documents Against Acceptance (DAA)
  The process of delivering documents required by the importer to take possession of goods after obtaining the acceptance of bills of exchange (Drafts) by the authorized bank to handle the documents.
  Commercial and noncommercial risks
• Open Account
  The procedure where a seller extends a period of credit to a buyer to make payment for goods not supported by any specific documents against the contract of sales. Commercial and noncommercial risks

Q: Why it is even more important for exporters to insure with JLGC during this challenging period of economic environment?

A : In view of existing economic slow down and recession facing many markets due to the global financial crisis that has resulted in a credit crunch and affected many companies, it is even more important for exporters now to mitigate credit risks of non payment foreign importer, by covering their exports with JLGC.

Q: Does JLGC provide guarantee cover for credit sales in the local market and export credit to all countries?

A: JLGC provides credit insurance cover to a wide spread of countries worldwide, and also insurers domestic sales provided that the goods or services are of Jordanian origin, and the local buyer is not the last consumer of the products under guarantee. However, JLGC would inform the exporter about the reasons for rejecting coverage exports to any country.

Q: what is the maximum credit limit?

A: JLGC assigns a credit limit for each importer or local merchant accepted to be covered. This limit represents the maximum liability of the company for payment of compensation. The level of the limit is set at the maximum amount that can be owed by the buyer at any time. The credit limit is the maximum covered credit line for a specific buyer, which operates on revolving basis, and the covered party can trade within the approved credit limit throughout the contractual period without further reference to JLGC.

Q: What is the insured percentage under credit guarantee contract?

A: The insured percentage is up to 90% of loss against commercial risks and non-commercial risks.

Q: Why does JLGC charge premium on total business declared, when it exceeds the credit limit amount?

A: As per the guarantee contract, the premium is payable on actual export and domestic sales made to various buyers on whom credit limit have been issued and not on the credit limit amount. However, JLGC charges premium on sales declared by the covered party in excess of credit limit due to the fact that those export sales made in excess of credit limit also be automatically covered once previous shipments are paid. If no premium is charged on those sales, it is off cover in accordance with the terms of the guarantee contract in the event of non-payment by the buyer.

Q: what is the Premium rate for JLGC export credit guarantee?

A: Premiums rate vary depending on the trading history and historical debt loss of the exporter seeking JLGC cover, as well as JLGC risk assessment. However usually the premium is charged to the importer or local merchant.

Q: What action to be taken by the exporter if the importer or the local merchant requests an extension of due date of payment?

A: If the importer or the local merchant requests an extension for the due date of payment, the exporter should study the request carefully, based on facts and circumstances of the case. If the exporter agrees for extending the due date of payment, then the exporter should seek the approval of the JLGC giving the details justifying his decision. The exporter should also pay an additional premium for the extended period.

Q: What is the compensation procedure in case any covered risk is realized?

A: When the covered party is aware of any adverse information, which may affect the payment of credit-insured sales, he has to inform JLGC to take measures to minimize losses. A claim for compensation should be submitted as soon as it becomes clear that the covered party efforts to minimize loss have been exhausted. JLGC would pay compensation within five months.

Q: What are the procedures for JLGC export credit guarantee?

A: These procedures include:

1. A guarantee application should be first submitted to present the proposed trade transaction along with basic information about the importers or local merchants.
2. Based on the information provided in the application form and the information collected on buyers or issuing banks, JLGC provides an offer to the exporter indicating the limit approved for each buyer.
3. Fees and premiums would be limited based on an evaluation of the covered risks and the volume of trade transaction of the applicant.
4. If offer is accepted, an insurance contract is signed.

Q: Why should the exporter avails credit insurance coverage in spite of the fact that he has not experienced credit losses?

A: JLGC’s Credit Insurance contract gives the exporter peace of mind and complete confidence to grow his business safely. It is very difficult for an anyone to predict which client will default on payment. Almost 50% of all payment defaults arise from debtors with whom stable and long-term trade relationships have been established. The Credit Insurance Policy is a risk management tool and it helps the exporter to stabilize his cash flow and protect his trade receivables in the ever-changing competitive and economic business climate. In addition, he can enhance his borrowing power from financial institutions. Unexpected losses can come from even the most reliable customers. Credit Insurance provides a safety net against unpredictable events that can affect the exporter and his customers. If his customers are impacted by the bankruptcy of one of their customers, this could impact their ability to pay the exporters on due dates.

Q: How Export Credit Guarantee system has been established in Jordan?

A. The Jordanian government adopted the "Jordanian Scheme for Export Credit Guarantee and Local Sales Credit Guarantee as an incentive for the development of exports through technical assistance of a number of Arab and foreign corporations. JLGC which most of its shares owned by the central bank , number of commercial banks and the social security corporation is managing the Scheme. JLGC since its establishment is developing the scheme, which is designed to help the Jordanian exporters to promote their exports.

Q: Why should the exporter avails credit insurance coverage in spite of the fact that he has a comprehensive commercial insurance?

A. The commercial insurance of the insurance companies covers the tangible exported goods against loss , theft and damage, while the credit guarantee covers the non-payment by the importers on due dates.

Q: Why does the exporter sell on credit terms?

A.. The importers seek to obtain goods and services from anywhere in the world with the best conditions. This has become possible in the light of freedom and ease of international trade. On the other hand, industrial companies seek to sell their products in both local and foreign markets. This increased competition among exporters of the same commodity from around the world. The exporters can increase exports to their current markets and enter new ones by offering easier payment conditions, without insisting on the opening of traditional LCs

Q: What are the main features of the export credit guarantee contract?

A. The export credit guarantee contract includes details of commercial and non- commercial risks which prevents the exporter from obtaining his dues from the importer on due dates. The contract shows the rights and obligations of the covered party as well as JLGC. The contract also shows the compensation procedure in case any covered risk is realized along with other necessary articles. JLGC export credit guarantee contract was prepared in accordance with a “Partnership Agreement” signed between JLGC and the French Company for External Trade Insurance (COFACE).

Q- Why credit guarantee is considered a part of modern business practice?

A- Ever since exporters and producers started granting credit terms for their sales, some importers and local merchants have failed to pay their debts on due dates which led to catastrophic results for the exporting companies. Thus, credit guarantee becomes necessary and provides measure of security to limit credit risks for exporters.

Q- What type of risks covered under the domestic credit guarantee?

A- JLGC covers the risks on the insolvency of the buyer as well as failure of the buyer to pay the seller the value of goods sold and accepted by the buyer.

Q. How does the Export Credit contract of JLGC help to raise finance?

A. The export credit guarantee contract is normally recognized by commercial banks as a valuable form of an additional security. Thus the covered party can obtain financing with more favorable conditions by discounting commercial papers while assigning the rights of compensation to the bank without recourse to the covered party in case any covered is realized.

Domestic Credit Insurance Programme

Q. What is the purpose of the Domestic Credit Insurance Programme ?

It’s a program that guarantees to local manufacturers and industries or their banks the payment of their sold goods by local buyers.

Q. What are the benefits this programme provides?

This programme provides the Jordanian industrialists with a guarantee of  85 % of the value of goods sold to local buyers, and encourage them to expand their local market.

It assists them in obtaining the necessary financing they need from local banks.

Offers them the financial information about their local customers and their ability to repay their debts.

Q. What Are The benefits to the local buyers ?

This program offers local buyers the  guaranteed commercial credit they need from the local manufacturer with easier credit conditions for their bought goods.

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