liwwa's Economic Impact

liwwa's mission is to generate job and income growth in the markets we serve. We do this by helping small and medium- sized enterprises (SMEs) access credit to buy new assets and inventory. This enables SMEs to generate more income and hire more employees, with positive ripple effects for the economy as a whole. In this blog post, we assess the size of that overall economic impact.

As of January 2017, we have extended $2.9 million in loans to SMEs in Jordan. We used Leontief’s (1996) input-output model, explained in greater detail below, to estimate the economic impact of this lending. We are proud to announce that our $2.9 million of lending to Jordanian SMEs has generated:

205 jobs supported in Jordan
$778,948 of income for Jordanians
$5.78 million in output to the Jordanian economy

Input-output Methodology

Our study relies on Leontief’s input-output model ^[Leontief, W., (1996). “Input-Output Analysis”, in (ed.) Input-output Economics, Oxford University Press, London.] to calculate liwwa’s economic impact on a campaign by campaign basis. We employ economic multipliers aggregated by Osama Al Zoubi ^[Al Zoubi, Osama, (2013). “Economic Multipliers for Jordanian Economy: (Input-output >Analysis)”, Global Journal of Management and Business Research, Vol 13, Issue 7.] from data provided by the Hashemite Kingdom of Jordan’s Department of Statistics. The economic multipliers estimate the number of jobs, income, and output that are generated by adding an additional unit of final demand to each Jordanian industry.

For example, a supermarket campaign to purchase inventory such as $50,000 of vegetables from a Jordanian farmer will generate an increase in final demand in the agriculture industry. Over the course of a year, this $50,000 increase in final demand in the agriculture industry will support 13 jobs, generate $22,000 of additional income for agriculture laborers and add $178,000 of additional output to the Jordanian economy.

The magnitude of these impacts varies by industry, with manufacturing contributing the highest industry output, while construction supports the most employment. The table below highlights these differences between the top 5 industries for liwwa campaigns:

These economic multipliers sum the direct effects, indirect effects and induced effects which result when liwwa lending facilitates an asset purchase in Jordan. The purchase sets of a ripple effect through the Jordanian economy:

Direct Effect: The initial financing lent to borrowers (value of asset purchase)

Indirect Effects: Income and profits generated for liwwa borrowers, suppliers to liwwa borrowers, and continuing down the supply chain

Induced Effects: Economic activity generated by the increased household spending of employees of the borrower and supplier firms

Our Murabaha model of financing, conducted through specific asset purchases, allows us to categorize each campaign into one of the 15 Jordanian industries and apply the appropriate multipliers, resulting in a precise estimate of economic impact for all campaigns.

Discounting Imports

Approximately 45% of liwwa campaigns involve importing goods from outside of Jordan and this lending does not directly generate additional final demand in a Jordanian industry. Therefore, the impact of these campaigns is calculated only based on the estimated profit generated by a borrower through the local resale of the imported goods.

For example, if a borrower imports $50,000 of cloth from Turkey to resell at a 14% profit margin, this campaign would only be calculated as adding $5,600 (resale profit) in final demand to the retail and wholesale trade industry, not the original $50,000 value of the asset.

Therefore, the 45% of liwwa campaigns that import assets only account for 10% of liwwa's total economic impact, while the 55% of campaigns that make local asset purchases account for 90% of liwwa's economic impact in Jordan.

Final Results

After calculating each campaign's individual impact based on industry and import status, we have determined that on average, every $1 lent generates $2.02 of output, with every $13,941 lent supporting 1 job and $3,798 of income.