liwwa CEO Ahmed Moor's interview with Entrepreneur Middle East

Jordanian lender looks to raise $3m pre-series B funding, eyes further expansion in Egypt.

14 Top Funded Fintechs in the Middle East 2021


10 Best Amman FinTech Startups – The Future of FinTech

Amman-based Liwwa raises $6 million to fuel growth of its SME lending marketplace in Jordan and Egypt

liwwa launches Underwriting-as-a-Service in strategic partnership with Capital Bank of Jordan

Liwwa: financing SMEs in Jordan

Liwwa, Capital Bank of Jordan sign agreement to activate $10 million revolving line of credit


Liwwa to invest portion of USD 3 mn pre-series funding in expanding SME business in Egypt


liwwa, Capital Bank sign agreement to activate revolving line of credit


"Inspired by and made for my children" A slogan that drove Amina Mango to success.

Amina’s Skincare is a local Jordanian brand for natural skincare products. It is the first and only certified organic skincare manufacturer in larger Middle East and North Africa region. Curated and created by Amina Mango.

Amina Mango, is a mom, a wife, a woman and a Jordanian entrepreneur. An artist at her core, Amina holds an art degree from Florence Italy. Her company slogan is “Inspired by and created for my children” an honest and genuine statement that stands true at the core of everything that she does. We sat down with Amina to talk about the inspirational women that she is and how she’s achieved her success.

Q: Every brand has a unique trait. What is unique about Amina’s Skincare?

A: Aside from being the first and only certified organic skincare manufacturer in Middle East and North Africa region, what makes us even more unique is that we mostly use local hero substances; organic virgin olive oil, Dead Sea salts and Aloe Vera in addition to other certified organic substances from all over the world - it is at our core to create a sustainable structure and be beneficial to our local communities first.

Q: Apart from your dedication and precision, who gets the credit for Amina’s Skincare seeing the light? What do you say to them?

A: The origins of this brand started when I first started creating skincare products for my kids, my eldest daughter was suffering from eczema and finding natural, safe and effective skincare products for sensitive skin was what drove me, After all “Necessity is the mother of invention”. My kids were both my inspiration and my motivation. Throughout the journey of making all of this happen, I had the support of everyone around me; my kids, my husband, my brother, and my family. If it wasn’t for their constant support, these products might not have seen the light.

Q: How did you start and how was your journey?

A: I started making soaps in my kitchen, then moved it to a spare room I had in the house. When I started to make products for people other than my family and my friends, I realized that this room is not enough anymore and I need more space. I made a small workshop in the backyard and moved my production. I didn’t have a shop or any online presence at the time. In 2008, I decided to register and start the factory. Needing to import raw materials and grow further, I had to go into the agonizing registration process. Registering a factory that is a first and one of its kind, took us years of convincing the ministry to allow the registration of the factory; especially that it was going to be in a non-industrial area.
Ever since then, it has been only growing. Now, we’re aiming to expand the size of the factory with more production lines. The number of employees is now twelve but we look forward to making it larger.

Q: From all the challenges that a new business could encounter, what would you list as the top three?

A: The first challenge I faced was that I did not have the knowledge I needed for manufacturing and production, especially when it comes to organic products, but I managed to intensively learn everything on my own.
The bureaucracy, the random enforcement of laws, registration requirements and the massive amount of time this process needed was another challenge I had to overcome. The lack of information in every step of the way was a challenge. Trying to find raw material in itself was a main one as many of the suppliers are not listed nor online. Finding a reasonable designer, or finding out the steps and requirements is hard as well. Jordan is well-equipped for large businesses which makes it a lot harder for small businesses to see the light nonetheless survive. Cash flow was another challenge, we had to smartly manage. Raw materials become cheaper when you buy in bulk but cash isn’t always available. It's a vicious cycle really.

Q: How did you first hear about liwwa?

A: My brother first told me about liwwa. We’ve been using the cheque discounting service, this has and is still helping us with the cash flow issues. I truly believe that the key to development and sustainability in our economy is through small businesses. Supporting these businesses will lead to income growth and more job opportunities, this in itself will grow our economies. Small businesses need support; especially at the beginning; and this is what liwwa is doing. Without liwwa’s support; we wouldn't have been able to reach the growth stage that we’re at now.

Q: As a new business, surviving COVID19 must have been hard. Tell us how you managed? Decisions you had to take or new business rules you had to apply.

A: COVID 19 was challenging. The pandemic has affected us in many ways. The closures that took place at the beginning were hectic. With the factory being forced to close for quite some time, we were not able to fulfill the demand. The demand has increased on the sanitizing hand cream and we have sold more than we anticipated. We couldn’t meet this demand with more sales as the factory was closed at the time. Raw material shortages, packaging shortages, shipping delays came also as a result of COVID 19. We were struggling but we managed to learn, cope and adapt to these changes. The purchasing behavior has changed as well. Orders have become more frequent but with less volume as people were struggling with cash flow problems as one of many problems people have faced during the pandemic. We’re still adapting to the current situation, we’ve become more resilient and leaner when it comes to our business, which in itself has its implications. But at the end, we need to keep it up and keep going.

The sanitizing hand cream was not a popular product of ours but it became a hit as soon as the pandemic started. The fact that it is a non-irritating chemical-free sanitizer made it more popular, increased the demand on it and made it easier for us to promote.

Q: How was liwwa’s support during the pandemic?

A: The support has been very good and very fast and we appreciate that. It would have been very challenging for us to overcome these circumstances and sustain our cash flow if it wasn’t for liwwa’s support. liwwa has enabled our sustainability throughout the past few months.

Q: Have you faced any challenges as a female entrepreneur?

A: One thing I found and was surprised with was the number of female industrial engineers in Jordan. Although males dominate these kinds of jobs, I found that there is a huge number of females in this industry. These engineers are not in Amman only, but also in other governorates. In terms of finding the right labor force for my factory, it was easier than I expected.

I have assumed that I would find discrimination against a woman running a factory, but what I found was the opposite. I didn’t feel any discrimination at any of the entities I had to work with. Unfortunately, what I noticed that discrimination came from women holding medium to senior positions in some entities and made it harder for other women.

Q: To anyone who is thinking about turning their passion into a business idea, what would you say?

A: Find the reason why you’re doing this, then match this reason to the product. Supporting your income is one we all share. If you can find something you’re actually good at that is beneficial to other people, this is it. If you don’t have the passion for it, you won’t keep going. Your passion will lead you and keep you motivated.

As liwwa, we also found that small to medium sized businesses are more resilient as they are either a product of a passion or a personal or a family business. So, the will for protecting these businesses is bigger and their owner will do anything it takes for their businesses to survive. And this is what we’re for and this is the core of our business: creating more income and more job opportunities.


**What is Auto-Invest?** 

liwwa's Auto-Invest tool allows investors to automate their investment strategy by specifying their risk appetite, investment horizon, and level of diversification. Auto-Invest then creates and maintains a diversified, balanced loan portfolio on the investor's behalf. The tool invests an investor's available funds across many loans on a daily basis according to their strategy. This removes the burden of logging in frequently to make new investments, and ensures that any newly added funds and loan repayments are efficiently reinvested into new loan opportunities.

Currently, over half of liwwa's active investors are taking advantage of this feature to increase diversification, reduce volatility, and earn higher returns. Learn more about these benefits and Auto-Invest's historical performance compared to manually choosing loans in this blog post.

We have provided a simple guide below for investors setting up Auto-Invest for the first time to understand more about how the tool works:

**How do I choose the Settings for Auto-Invest?** 

There is more than one way an investor can go about setting up the Auto-Invest tool, keeping in mind that there is no single "best" combination. Each investor should determine their personal risk tolerance and investment goals and choose their Auto-Invest parameters on that basis. The guide below explains how each parameter works so that investors can make informed decisions when setting up the tool.

![AI - Risk Classes.png](https://liwwa-cms.s3.amazonaws.com/AI_Risk_Classes_EN_fde0522e32.png)

Portfolio Distribution by Risk allows an investor to choose their target allocation across risk classes based on their risk appetite. If an investor has a high appetite for risk and chooses 30% for Class D, Auto-Invest will make investments that are more concentrated in the relatively few Class D loans currently offered on the platform. You can learn more about liwwa's risk grading system here.

Investors can opt for liwwa’s default risk allocation (Class A - 45%, Class B - 35%, Class C - 17%, Class D - 3%), which matches liwwa's overall loan portfolio. This means Auto-Invest would spread the investor's funds relatively evenly across all loans offered on the platform.

For example, if a new investor added $1,000 to their liwwa account today and activated Auto-Invest with the default risk allocation, Auto-Invest would invest $450 across the 9 Class A loans currently open on the platform ($50 per loan), $350 in Class B loans, $170 in Class C loans and $30 in Class D loans. After a few days, once the first batch of loan repayments for $55 is paid, Auto-Invest would then re-invest the $55 in a similar fashion, $24.75 in new Class A loans, $19.25 in Class B, etc.

![AI - Loan Tenor.png](https://liwwa-cms.s3.amazonaws.com/AI_Loan_Tenor_EN_4caf8508fd.png)

liwwa typically offers loans with repayment periods between 6 to 18 months (loan tenor). Most liwwa investors have a long investment horizon of five or more years, so it generally makes the most sense to invest across the full spectrum of loan tenors offered. When an investor is ready to exit their liwwa investment, they can disable Auto-Invest and begin regularly withdrawing their repayments until recovering their full investment plus profits within about one year.

![Ai - Max Invest.png](https://liwwa-cms.s3.amazonaws.com/Ai_Max_Invest_EN_c3f926807f.png)

Investors that diversify their portfolio across many loans on liwwa's platform have witnessed more stable returns and reduced risk. Therefore, liwwa recommends investing only a small portion of your overall portfolio in any one loan. Auto-Invest automatically attempts to divide your funds among the most possible loans based on your settings. An investor using the default settings would typically be invested in 200-300+ loans within one year, with less than 1% of their portfolio invested in each loan.



Investors are constantly told to diversify. Perhaps no investment advice is more ubiquitous than the admonition not to put all of one’s eggs in one basket. But what does diversification look like? How can we measure it, and what are the consequences of neglecting it?


In 2017, we wrote a blog post explaining how diversification helps mitigate the idiosyncratic risk of investments. We showed that liwwa investors whose portfolios had a larger number of “effective loans” -- or loans adjusted for relative size -- had enjoyed more stable and predictable returns.


Today, three years later, we are happy to note that liwwa’s investors are more diversified than ever. The average liwwa investor has a portfolio of 16 effective loans, and many hold more than 50. The distribution of effective loans in liwwa portfolios is illustrated in the chart below.

![Distribution of Effective Portfolio Size.png](https://liwwa-cms.s3.amazonaws.com/Distribution_of_Effective_Portfolio_Size_92e59707c3.png)

If we plot the effective number of loans in these portfolios against their investment returns, we see a clear pattern: diversified portfolios have their returns clustered tightly around the expected long-run average, while less diversified portfolios are widely scattered.

![IRR vs effective number of loans.png](https://liwwa-cms.s3.amazonaws.com/IRR_vs_effective_number_of_loans_6dc9a46dcd.png)

Investor portfolios with fewer than 10 effective loans have relatively unpredictable returns. Overall, while this group saw high average IRRs of around 12%, the standard deviation of returns for this group was 7.5 percentage points. A small share of these undiversified portfolios -- 3.9% -- even saw negative overall returns.


By comparison, portfolios with more than 10 effective loans had about the same average IRR -- around 14% -- but much less volatility, with a standard deviation of only 2.5 percentage points. All portfolios with more than 8 effective loans saw positive returns.


This demonstrates the importance for investors of spreading their portfolios across many different assets to ensure their returns are predictable. In particular, liwwa investors should aim to have more than 10 effective loans in their portfolios to reduce the uncertainty of their returns. An even higher number would be strongly preferable.




To some casual critics, the idea of investment returns appears somehow unfair: investors, it may seem, are being paid for already having money. More sophisticated observers realize that, in fact, what investors are compensated for is taking risk — that is, for allowing their funds to be used, directly or indirectly, in risky economic projects that may or may not return their money. Understandably, most investors expect higher investment returns when they accept higher risks. But how do investors know if they are well compensated for the risks they take? That is the topic of this blog post, in which we explore the concept of risk-adjusted returns — in particular, the notion of the Sharpe ratio.


**Weighing risks and rewards**

The returns on an investment are generally straightforward to quantify. At its most basic, an investment is just an exchange of some money today for some (hopefully larger) amount of money in the future. The return on the investment is simply how much the original investment amount grew as a result of those future payments, over a given time period.


Risk, however, is a more elusive concept. It can be understood in myriad ways, and may vary by investor, but a widely used indicator of risk is the standard deviation of returns, often referred to as the volatility of an investment. The underlying intuition is that if investment returns are more variable, they are less predictable, and therefore riskier to investors.


We illustrate these concepts with some real-life examples. The chart below plots the 2017 monthly annualized returns against standard deviations of a few select asset classes, or major categories of investments. ^[For US stocks, we use the S&P 500 index. For Dubai stocks, we use the DFM General Index. For US high-yield bonds, we use the S&P High Yield Corporate Bond Index. For Commodities, we use the GSCI. Data on liwwa loans comes from liwwa Inc, and includes all loans maturing in 2017, reported net of fees, late payments, defaults. For liwwa loans, we assume a fully diversified portfolio that participated in all loans offered through www.liwwa.com.]


<img src="https://liwwa-cms.s3.amazonaws.com/Screen_Shot_2022_07_03_at_5_07_25_PM_365ec41420.png" alt ="Risk vs Return for Select Asset Classes"/>

This gives us a general sense of what investments yielded what returns, and how risky they were. We can quickly tell that the Dubai stock market did not give investors very attractive compensation for associated risks in 2017. But some other asset classes are trickier to parse: how did US stocks compare to high-yield bonds or liwwa loans on a risk-adjusted basis, given that stocks had both higher returns and higher risks?


In order to get a more direct comparison of what asset classes yielded "good" returns given their volatility, we turn to another analytical tool: the Sharpe ratio.


**Comparing Sharpe ratios**

The Sharpe ratio is a measure of the risk-adjusted return of a portfolio of assets, first introduced by Nobel Prize-winning economist William F. Sharpe. The Sharpe ratio tries to answers the question: for each unit of risk you take, what returns are you getting in exchange?
It does so by dividing the "excess return" of an asset or portfolio with the standard deviation of its returns. "Excess return" refers to the additional returns generated by the asset above and beyond some theoretical "risk-free rate," or RFR. For practical purposes, calling this rate "risk-free" is a bit of a misnomer, since no investment is truly without risk. In reality, we can think of it as the least risky baseline rate available to investors. Conventionally the rate on the three-month U.S. Treasury bill is used as the RFR, and since we are dealing here with assets all denominated in U.S. dollar-pegged currencies, it is appropriate for our purposes.

Calculating the Sharpe ratio is now simple; it's just

Sharpe Ratio = (Average Return - RFR) / (Standard deviation of returns)  

This gives us a more direct way of comparing how well different investments compensate us for the associated risks. The chart below presents the Sharpe ratios of the asset classes from the scatterplot above.

![sharpe ratios for select asset classes.svg](https://liwwa-cms.s3.amazonaws.com/sharpe_ratios_for_select_asset_classes_40f4160ea6.svg)


This makes it clear that taking risk into account, liwwa loans provide good compensation for risk, relative to other asset classes.


**Explaining high Sharpe ratios Jordanian SME debt**

A Sharpe ratio above 2 for monthly returns is unusually high. As a point of reference, U.S. real estate investments during the boom years of the early 2000s had a Sharpe ratio around 1.35. ^[Frank J. Ambrosio, "An Evaluation of Risk Metrics," Vanguard Investment Counseling & Research, https://personal.vanguard.com/pdf/flgerm.pdf, p.6]

How can we observe such a high Sharpe ratio for Jordanian small business loans? The efficient markets hypothesis suggests this should not persist, since investors will pile into such an asset and bid up its price, thus bringing its risk-adjusted returns in line with other asset classes. However, this depends on the assumption that the asset is traded in an efficient market: one characterized by perfect information, low transaction costs, and low barriers to entry. This may be true of large markets in the West, like the New York Stock Exchange or the market for UK gilts, but it is far from true for small business debt markets in Jordan. The practical difficulties of entering this market for most investors, along with the higher cost of acquiring information and executing transactions, mean that abnormally high risk-adjusted returns can persist in a way that they can't in large, publicly traded markets.

liwwa.com provides a rare opportunity for investors to tap into such a market, by solving the market entry, information and transaction problems for investors through a simple online interface.


**A final word on portfolio diversification**

Finally, the point of the Sharpe ratio is not necessarily to decide if one asset class is "better" than another. A more reasonable usage of the Sharpe ratio is to help investors decide whether and how much of an asset to include in their overall portfolio, based on how the new asset would affect the portfolio's risk/return profile. This question of optimal portfolio allocation will be the topic of an upcoming blog post.


As liwwa's portfolio has grown, the types of businesses we lend to have evolved as well. The snapshot of businesses provided below encompasses data from our 100 most recent borrowers who have taken loans within the past 6 months. For historical comparison, we will refer back to what our average borrower business looked like a year ago.


**Owner/Manager Characteristics**

The median age of a liwwa borrower is 41-45 years old with an average of 12 years of management experience in their field.


**Business Characteristics**

The Central Bank of Jordan segments the SME market by size. There are Micro, Small, and Medium-sized businesses in the country, and they are categorized by number of employees or annual sales.^[Circular No. (10/5/436), 2011 & Instructions For Licensing Microfinance Companies No. (2016/62), 2016, Central Bank of Jordan]

![](https://liwwa-cms.s3.amazonaws.com/SME_Business_Categories_193887bbd1.png?updated_at=2022-07-04T08:46:21.975Z)

**Number of Employees:**

- 41% of liwwa borrowers have fewer than 5 employees, classified as Micro Enterprises. (down from 50% a year ago)
- 46% of liwwa borrowers are Small Enterprises, with between 5 and 20 employees. (up from 40% a year ago)
- The remaining 13% of liwwa borrowers have between 21 and 100 employees, classified as Medium Enterprises. (up slightly from 10% a year ago)

![enter image description here](https://liwwa-cms.s3.amazonaws.com/Distrubtion_of_Business_Size_by_E_Mployees_9104a630bb.png?updated_at=2022-07-04T08:46:22.697Z)

Based on the most recent 100 borrower businesses, the average business has 13 employees. This is an increase of more than 60% from the average of 8 employees a year ago.

This average is skewed by three large businesses with over 100 employees each. By taking the median, the outsize effect of the three outlier businesses is mitigated. The median liwwa borrower business employs 6 people.



**Annual Sales:**

- 2% of liwwa borrowers are Micro Enterprises with less than 100K JOD ($141K) in annual sales. (down from 14% a year ago)

- 61% of liwwa borrowers are Small Enterprises with between 100K JOD ($141K) and 1 million JOD ($1.4 million) in annual sales. (down from 72% a year ago)

- 37% of liwwa borrowers are Medium Enterprises with between 1 million JOD ($1.4 million) to 3 million JOD ($4.2 million) in annual sales. (up from 14% a year ago)

![](https://liwwa-cms.s3.amazonaws.com/Distribution_of_Business_Size_by_Annual_Sales_bd4d50bd77.png?updated_at=2022-07-04T08:46:22.467Z)

The average liwwa borrower has 1,228,426 JOD ($1,735,065) in annual sales which is more than double the annual sales of the average liwwa borrower from one year ago of 543,616 JOD ($767,819). This average is skewed by some outlier businesses with very high annual sales including 4 businesses with more than 4 million JOD in annual sales. A more reasonable measure is the median annual sales of 552,456 JOD ($780,305).

Therefore, 63-87% of liwwa borrower businesses in Jordan can be classified as Micro & Small Enterprises, and the remaining 13-37% can be classified as Medium Enterprises, depending on the metric chosen to measure these classifications.


**Business Age:**

The average liwwa borrower has been in business for 8.5 years (median: 7.5 years). While this is almost 2 years longer than the year-ago average of 6.7 years in business, it is still well below the average age of all Jordanian SMEs which is 15 years.^[ Enterprise Surveys (http://www.enterprisesurveys.org), The World Bank, 2013]

![](https://liwwa-cms.s3.amazonaws.com/Distribution_of_Business_Age_08109499ec.png?updated_at=2022-07-04T08:46:22.933Z)

**Net Profit Margin:**

The average liwwa borrower has an 8.6% net profit margin (median: 7%). The net margin is estimated internally by taking into account the borrower's stated gross profit margin, financial documents, and sector benchmarks. There is wide variation in borrower net profit margins based on differences in business industry, geography, source of goods and other factors which influence the level of competition and specific net profit margin that the market will bear for a particular business.

![](https://liwwa-cms.s3.amazonaws.com/Distribution_of_Net_Profit_Margin_743f1912e9.png?updated_at=2022-07-04T08:46:22.628Z)

**Annual Income:**

The average liwwa borrower business earns an estimated annual income of 78,809 JD ($111,312) with the median annual income at 44,352 JD ($62,644). This is a 42% increase from a year ago when the average annual income was 55,475 JOD ($78,355).

![](https://liwwa-cms.s3.amazonaws.com/Distribution_of_Annual_Income_59cd72db71.png?updated_at=2022-07-04T08:46:22.205Z)

**Characteristics of Conducting Business**

The average liwwa borrower business:
- Makes 45% of sales to retail customers and 55% of sales as wholesale trade to other businesses.
- Conducts 98.5% of sales in the local Jordanian market and 1.5% of sales as exports to foreign markets.
- Collects payments from customers via 60% cash and 40% cheques.
- Purchases 57% of inventory/raw materials from the local market and imports 43% of inventory/raw materials from foreign markets.
- Pays suppliers using 33% cash, 37% cheques, and 30% transfers.


**Conclusion**

Overall, in the past year, the average liwwa borrower business has become larger, older, and increased its annual sales and income. They are businesses which, when provided convenient access to finance, have the potential to make a big impact on job and income growth in their communities. Our mission at liwwa is to help them do exactly that.




**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:

![](https://liwwa-cms.s3.amazonaws.com/Screen_Shot_2022_07_04_at_4_03_58_PM_9e83a3df64.png)


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

![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](https://liwwa-cms.s3.amazonaws.com/Direct_Indirect_Induced_a0bef63693.png?updated_at=2022-07-04T07:36:49.985Z)

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.

![](https://liwwa-cms.s3.amazonaws.com/Screen_Shot_2022_07_04_at_4_04_07_PM_167b79e41b.png)

**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.




Many investors are familiar with the concept of diversification. Diversification spreads risk across multiple investments, so that one or two failures can be adequately compensated by the remaining well-performing investments. This is an important strategy for maintaining a healthy portfolio.

**Why does diversification matter?**

To illustrate the usefulness of diversification, we first need to understand the nature of risk in a credit portfolio. We can think of risk as coming from two sources:

-   _Systematic risk_, or the risk that borrowers fail to pay back due to worsening macroeconomic conditions facing an industry or a market; and
-   _Idiosyncratic risk_, or the risk that borrowers fail to pay back for reasons affecting only them.

Diversification helps us address the second risk: as we add more and more investments to our portfolio, the idiosyncracies of our individual investments start to cancel out, and the idiosyncratic risks go away. Our returns become more predictable. With very large portfolios spread thin over many investments -- portfolios with high “granularity” -- all we need to worry about is systematic risk, like a recession or a force majeure event. Diversification takes care of the rest.

To see how this happens, consider the chart below. We consider hypothetical portfolios with between 1 and 200 loans, make some assumptions about these loans, and run a  [Monte Carlo simulation](https://en.wikipedia.org/wiki/Monte_Carlo_methods_in_finance)  of 20,000 scenarios to estimate see how the portfolios will perform.

In this simulation we assume for simplicity that all investments are equal in size, all pay an  [IRR](https://liwwa.com/learn/internal-rate-of-return)  of 15% and all have a 5% probability of defaulting, with $0 recovered in case of default.

We can now visualize how diversification affects our returns.

![monte_carlo_simulation](https://liwwa-cms.s3.amazonaws.com/monte_carlo_b52032c3c0.png?updated_at=2022-07-04T08:19:40.421Z)

Notably, at any given portfolio size, the average return is the same (about 9.3% with these assumptions). But as we add more investments to our portfolio -- as we decrease its “name concentration” in financial jargon -- the variability of those returns go down, as the simulated returns cluster more closely around the expectation. As we diversify, our returns become more predictable.

Also note the dashed line representing a zero return in the chart. As we add more investments and the granularity of the portfolio increases, the probability that our returns will fall below this line -- i.e. that we will lose money -- decreases. For very granular portfolios, the probability of negative returns become almost negligible.

**Measuring diversification**

The above exercise is meant to illustrate a general dynamic, but it is simplistic in many ways. For example, the assumption that all investments are of equal size often fails to hold. Some portfolios are dominated by a few large loans -- they have high name concentration. How can we think of diversification when taking into account loans of different sizes?

One straightforward way to do this is to use the  [Herfindahl-Hirschman Index](https://en.wikipedia.org/wiki/Herfindahl_index), or HHI. This index, which has long been used to measure market concentration by the U.S. Federal Reserve, is useful to gauge many kinds of concentration, including credit portfolio name concentration. In this context, we can think of it as an inverse diversification index.

The appeal of the HHI is its mathematical simplicity: it is simply the sum of the squares of each share of the whole. Put formally, it is:

![hhi_formula](https://liwwa-cms.s3.amazonaws.com/hhi_calc_427f275a21.svg?updated_at=2022-07-04T08:15:57.206Z)

where s_i is the share of the portfolio made up of each investment i. This means that the index ranges from close to zero for an “infinitely granular” portfolio to 1 for a portfolio with a single loan in it.

Applying this metric to liwwa, our overall portfolio has an HHI of .011. Since the meaning of this number is not very intuitive, it is often transformed into its inverse ( 1 / HHI ) which we can think of as the “effective number of loans” in the portfolio, accounting for their relative size.

By this metric, the effective number of loans in liwwa’s portfolio currently is 1 / .011 = 91. Of course, most of liwwa’s investors are not invested in all of our loans. The chart below shows the effective numbers of loans held by liwwa investors, expressed as a density distribution. liwwa users can download their portfolio data from  [our website](https://liwwa.com/)  to see how they compare.

![effective_n_density](https://liwwa-cms.s3.amazonaws.com/eff_n_density_e9298432da.svg?updated_at=2022-07-04T08:15:57.480Z)

liwwa encourages diversification by not requiring investments to meet some minimum limit -- unlike many other online lending platforms, we don't set minimum limits of $25-$100+ per individual investment. This means that even small liwwa portfolios can become well diversified over time.

Finally, we can look at the benefit of diversification in reality, by considering investments through liwwa's online platform. The chart below plots the returns of actual liwwa portfolios, held by our investors, against the effective number of loans in each portfolio. As predicted by the Monte Carlo simulation above, returns tend to cluster more tightly around the mean for well diversified portfolios -- in liwwa's case, around 13.9% IRR.

![](https://liwwa-cms.s3.amazonaws.com/irr_v_eff_n_73bec17347.svg?updated_at=2022-07-04T08:15:57.709Z)

As illustrated above, investing over a larger number of campaigns will limit idiosyncratic risk in the portfolio. The systematic risk, however, remains. A strategy to limit some of the systematic risk in a credit portfolio is to invest across a range of industries and geographies. liwwa currently offers investment opportunities across a broad spectrum of industries in Jordan and the United Arab Emirates. If this investment strategy is employed, worsening macroeconomic conditions in one industry or geography will have a smaller effect on the returns of the overall portfolio.

Finally, to address diversification on a broader scale, investors should always consider investments through liwwa’s platform as one part of a larger diversified portfolio that might include stocks, bonds, CDs, mutual funds, real estate and/or other investment vehicles.


**Before discussing how liwwa delivers Sharia-compliant loans and investment opportunities, let's first understand what Sharia-compliant investing means.**

Sharia is law based on religion and is derived from the sacred scriptures of Islam, namely, the Quran and the Hadith.

Sharia-compliant investing involves investing in accordance with the set goals and values set under Sharia and governs that you must be ethically and socially responsible while investing your money. It also indicates that your investments should not only benefit you but also contribute to the overall development of society.

**Sharia-compliant investing principles include:**

-  *Prohibition of Interest* – Under these guidelines, you are not allowed to either pay or receive interest as it is considered unjust.

 -  *Prohibition of investing in certain businesses and industries* - It is also forbidden to provide financing towards businesses that earn their income through sale of goods or services that are not permissible such as providers of alcohol, gambling, or weapons.

**Murabaha loan – one form of a Sharia-compliant investment**

Murabaha, also referred to as cost-plus financing, is an Islamic financing structure in which the seller and buyer agree to the cost and fixed markup of an asset. Within this transaction, the fixed markup takes the place of interest. Therefore, Murabaha is not an interest-bearing loan but is an acceptable form of credit sale under Islamic law.

***Example of a Murabaha Loan***

Laith owns a farm and would like to buy a tractor from a local retailer that is on sale for $50,000 to be able to expand his business.

Since Laith doesn’t have the cash on hand to purchase the tractor immediately, with liwwa’s help, Laith is able to receive the financing he needs to be able to grow his business. This involves liwwa purchasing the tractor from the retailer, and selling it to Laith for $55,000, to be paid over 11 monthly payments of $5,000. The total amount paid is fixed, and there is no compounding interest or additional charges introduced if payments are made early or late.

Once Laith receives the financing and the tractor, liwwa adds the loan to its investment platform as a Sharia-compliant investment opportunity. Interested investors are then able to buy a portion of the loan during the time before the first repayment. Once repayments begin, investors will receive monthly payments of their original principal and fixed profit according to their share of the loan. For instance, if you invested $1,000 in Laith’s loan, you would expect to receive 11 monthly payments of $100, for a total fixed repayment amount of $1,100.

liwwa’s Murabaha model was developed in consultation with legal experts in Jordan and modeled after Murabaha transactions at Islamic banks in Jordan. Scholars from the Ministry of Awqaf (وزارة الأوقاف) in Jordan reviewed liwwa’s Murabaha contracts and have verbally confirmed their compliance with Sharia principles. However, liwwa is not licensed as an Islamic lender at this time.

**Why aren’t all loans provided by liwwa Sharia-compliant?**

Sometimes small and medium businesses have specific needs that require financing solutions which do not follow Murabaha principles. Therefore, we provide our borrowers with different forms of financing to meet their diverse requirements. Examples of our other types of loan offerings are outlined below:

-  *Working capital:*  These loans are used to fund day-to-day business expenses such as payroll, rent, or operational costs and assist SMEs in managing cash-flow gaps during a slow business season.


-  *Check discounting:*  In a nutshell, this involves a business receiving cash today against a check provided by one of their customers for a future date. This way a business receives funds quickly to maintain operations without needing to wait to receive payments from its customers.


-  *Invoice discounting:*  Similar to check discounting, this involves a business receiving cash today against an invoice billed to one of their customers for a future date.


-  *Merchant cash advance:*  With this form of loan, liwwa provides a business with working capital based on its proven sales via a point of sale machine. liwwa uses a business’s data of customer credit/debit card payments to project future revenues which will repay the loan.

While these loan types are not Shariah-compliant, when you invest, you can be sure that you are taking the lead in providing financing to local small and medium-sized businesses, who are often unable to attain such funding alternatively - and you are allowing the backbone of our economy, SMEs, to grow and prosper!

**liwwa’s economic impact for the first half of 2022:**

We are excited to announce that the first half of 2022 has been our most successful in terms of lending and economic impact provided in the local economy. Since the beginning of this year, we have underwritten a record-breaking $16 million in loans, reaching $82+ million since our operations began.


**Your investments supported:**

1,732 jobs in H1 $42m in economic output $5.9m in income for Jordanians in H1 and 8,628 jobs all-time to the Jordanian economy in H1 and $29m all-time
and $196m all-time


**Question from an investor**

Loans are written off when it becomes highly unlikely that the remainder of the loan will be recovered. These are typically loans that are significantly delinquent and when the collection process is not yielding positive recovery outcomes. When a loan is written-off, your overall
account value and growth will decrease to reflect the loss of your remaining outstanding investment in the loan. Collections efforts continue regardless of the write-off and if successful, any collected amounts will be disbursed to your account.
Write-offs are part of the normal course of business in SME lending, as not every loan will fully repay due to unexpected business disruptions that our thorough credit assessment cannot fully predict. This highlights the importance of portfolio diversification because in a diversified portfolio consisting of hundreds of loans, a write-off will often be offset by the profits from other loans, with account value and growth quickly recovering to their previous levels. Historically, write-offs at liwwa have been only 1.15% of all lending, and liwwa investors have earned median returns of 13.2%.

Along with our revamped website that we released earlier this month, we are delighted to inform you that we have released a new feature for our Auto-Invest tool that will give you more investment options and make it even easier to invest with liwwa.
If you are happy with our new platform and the features that we’ve released - refer a friend, family member, or co-worker to invest with liwwa. Any new investor referred to the platform will receive $10 to begin their investment experience. When the referred investor adds $500 or more to their investment account, the referrer will also receive $50 as a token of gratitude.


**Referral Process**

Simply, email investor@liwwa.com introducing the new investor (cced) to liwwa. After the new investor completes the registration and onboarding process, the liwwa team will add $10 to the new investor’s account to begin investing.


**New Auto-Invest feature!**

Along with our revamped website that we released earlier this month, we are delighted to inform you that we have released a new feature for our Auto-Invest tool that will give you more investment options and make it even easier to invest with liwwa.

Investors now have the capability to invest evenly across liwwa’s entire loan portfolio, taking the guess-work out of investing. Alternatively, investors still have the ability to build personalized Au- to-Invest portfolios, with the “Custom Portfolio” feature. This allows you to tailor options such as; risk tolerance, investment horizon, and level of diversification.
The liwwa team strongly recommends taking advantage of the Auto-Invest tool as it
increases diversification, limits volatility, and has delivered higher returns on average than investors that manually choose which loans to include in their portfolios.


**Active and passive investing in a conventional sense**

The terms “active” and “passive” are buzz words that are used frequently when it comes to investing - and refer to the general strategies that individuals use to invest. 

Traditionally, “active” investing is a strategy by which investors attempt to earn returns that are greater than the market average. This requires a hands-on approach and the active investor will pick individual securities such as stocks, bonds, or options, in an attempt to outperform the market by deciding the best possible time to buy or sell.

On the other hand, “passive” investors prefer buying-and-holding their investments over a longer period, and focus on benefitting from the overall increase in market prices over time. Typically, passive investors allocate the majority of funds in  pooled-investment securities that follow one of the major indices such as the S&P 500 or Dow Jones Industrial Average (DJIA), which tend to best represent the larger market. Since these investors resist frequent buying and selling within their portfolios, this is a cost and time-effective investment method and the strategy also reduces the mistakes investors can make when they react emotionally to movements within the stock market. 

**Active investing with liwwa**

In the context of liwwa - we consider our active investors to be those who choose between individual loans to invest in, to meet their specific needs and preferences. For instance, if you would like to support a certain industry or invest in a particular type of loan, this is possible by browsing the new loans that become available on the platform twice a month and investing in those that meet your specifications. Investors can study the following characteristics to build their perfect portfolio:


**Characteristics of the business:**

- Number of previous liwwa loans
- Industry & Sector
- Business Description
- Years in Operation
- Number of employees 

**Characteristics of the loan:**

- Credit score 
- Loan amount
- Loan tenor 
- Loan type and purpose
- Sharia vs. Conventional loan 
- Expected Return (IRR)

Actively investing with liwwa is a great option for investors that enjoy a “hands-on” approach, giving them the flexibility to build a highly tailored portfolio of loans. However, one risk of taking this approach is that active investors often have more exposure to individual loans and lower diversification. Therefore, we recommend investors to diversify their portfolio over a large number of loans to enhance diversification and minimize risk. Active investors are also advised to frequently log in to their account to reinvest the returns generated on their loans, which can be a hassle over the long-term, as new loans are added and repayments come in continuously throughout the month.

**Passive investing with liwwa**

Passive investing on the liwwa platform can be accomplished by using our Auto-Invest tool which creates and maintains a diversified loan portfolio on your behalf. This can be thought of as investing in the full “liwwa Index”, rather than taking chances on a few individual loans. 

liwwa’s Auto-invest tool provides investors with the opportunity to invest evenly across liwwa’s entire loan portfolio, taking the guess-work out of investing. Alternatively, for investors that want to passively invest, but with a bit more specification, they can automate their investment strategy by specifying their risk tolerance, investment horizon, and level of diversification.

Currently, over half of liwwa's investors are taking advantage of Auto-Invest to increase diversification, reduce volatility, and earn higher returns. Auto-Invest reinvests new funds and repayments every night while you sleep, making it an effortless way to maintain your portfolio continuously. After setting up the tool with the click of a button, investors can sit back and relax, logging in infrequently to monitor their portfolio performance and receiving updates in monthly email statements. To read more about the advantages of Auto-invest, check out our blog post here.


**Takeaways**

liwwa gives investors the opportunity to add the SME debt asset class to their investment portfolio, regardless if they prefer active or passive investing strategies. While some investors are excited to choose between our new loans twice a month, others would prefer to have their money working for them in the background. At liwwa, we are supporting investors to earn high returns and diversify their portfolios to secure their future. 





The target was SMEs, because they are the engine that generates job opportunities and income growth. It was then and there that the idea behind liwwa came to life – crowdfunding to help fund small businesses.

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.css-1hnz6hu{position:static;}.css-1hnz6hu::before{content:'';cursor:inherit;display:block;position:absolute;top:0px;left:0px;z-index:0;width:100%;height:100%;}liwwa CEO Ahmed Moor's interview with Entrepreneur Middle East

liwwa CEO Ahmed Moor's interview with Entrepreneur Middle East