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's Auto-Invest tool allows investors to automate their investment strategy by specifying their risk tolerance, investment horizon, and level of diversification. Currently, over half of liwwa's active investors are taking advantage of this feature to increase diversification, reduce volatility, and earn higher returns.

For a simple guide on how the tool works, [refer to this blog post](https://liwwa.com/about/blog/auto-invest-how-to-guide).

**Benefits of Auto-Invest**

After spending a few minutes to set up Auto-Invest, the tool will automatically invest in hundreds of loans per year, creating and maintaining a diversified, balanced loan portfolio on your behalf. In addition to saving valuable time, investors using Auto-Invest witnessed a higher level of diversification, more stability in their returns, and higher returns overall than investors manually choosing individual loans.

![liwwa Investor portfolio vs Eff. Number of Loans.png](https://liwwa-cms.s3.amazonaws.com/liwwa_Investor_portfolio_vs_Eff_Number_of_Loans_be6e58a6ee.png)



**1. More diversification**

Diversification is one of the most important concepts in investing, and has been the subject of our blog posts for quite some time (if you’re interested to learn more about it, click here and here to delve deeper). One good measure of diversification is the number of effective investments in an investor's portfolio (the number of loans adjusted for relative size).

Investors using Auto-Invest have an average of 41 effective investments, compared to an average of only 11 effective investments for investors choosing individual loans. By this measure, investors using Auto-Invest are almost 4 times more diversified on average, reducing idiosyncratic risk, with important implications for the stability of returns.

**2. Less volatility**

The graph above shows that the returns (Mean Weighted IRR) for investors with less than 10 effective investments are widely scattered, with some of these poorly diversified accounts witnessing negative returns, while others are earning more than 20% IRR. Meanwhile, portfolios with more than 10 effective investments have achieved returns that are clustered more tightly around the long-run average of 13% IRR.

Investors using Auto-Invest benefit from the tool's emphasis on diversification and witness more stability, with a low standard deviation in returns of 2.68 percentage points. This compares to the substantially more volatile 6.23 percentage points for those investors manually choosing individual loans.

It is also important to note that no investors using Auto-Invest have witnessed negative returns (loss on investment).

**3. Higher returns**

The higher level of diversification and stability has paid off for investors using Auto-Invest, as they have earned average returns of 13.06% compared to 11.97% for investors manually choosing individual loans.

**Conclusion**

All investors should have an investment strategy that prioritizes diversification, otherwise they are at a greater risk of losing all or part of their investment. Investors that prefer to manually choose individual loans will need to log in multiple times per month to re-invest loan repayments and newly added funds in order to ensure a high level of diversification. Meanwhile, investors that take advantage of Auto-Invest can log in as little as once a year to check on their portfolio performance, while Auto-Invest does the rest.

_**Important Note:** Past performance is not a reliable indicator of future results. You should not rely on any past performance as a guarantee of future investment performance._


"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.




liwwa provides investors with the opportunity to diversify their portfolio, realize high returns and support local small and medium enterprises in the MENA region. Given the intermediary role liwwa plays between investors and borrowers, risk management is inherently critical as we aim to create maximum value for investors, clients and communities. liwwa also takes a balance sheet stake in the loans hosted in its marketplace joined by banks and other financial institutions.
 
 
The ability to mitigate risk is a core competency for liwwa. To achieve this, our culture embeds risk mitigation in our daily conduct. We strive to ensure that the loans disbursed through liwwa’s platform provide an appropriate balance of return for the risks assumed by investors. Our risk management framework is based on three core mechanisms:

![Risk Management Framework.png](https://liwwa-cms.s3.amazonaws.com/Risk_Management_Framework_a70d7f7cd9.png)

**1. Advanced risk assessment using proprietary technology**

liwwa’s credit assessment team includes experts with experience from some of the top financial institutions in the MENA region. The team utilizes various data points, machine learning technology, and their understanding of business lending to assess each application. By the end of the credit assessment, each loan application is given a credit score, which is based on the following inputs: borrower business experience, quality of the business, and financial performance.

![Credit Score Inputs .png](https://liwwa-cms.s3.amazonaws.com/Credit_Score_Inputs_e65a058444.png)

**2. Diversification**

New funding campaigns are hosted on liwwa’s platform every two weeks. These campaigns are for a mix of businesses, from different sectors, and with different credit profiles. This variety provides liwwa’s investors with the flexibility to invest in different campaigns based on their risk appetite.

**3. Recovery and collection**

liwwa’s collection and recovery team works systematically to recover any late payments or bad debt. liwwa works with defaulting borrowers to get their payments back on track and to restructure their loans, if necessary. For any missed payment that is not resolved within a period of 60 days from the payment due date, liwwa takes the necessary legal action through an experienced legal team that handles all legal proceedings on behalf of the company.



Our ability to host creditworthy loans is one of the core pillars of our success. Not only does it protect our investors, but it also keeps liwwa’s marketplace attractive for new investors, and ensures the continuity of our business.

We work actively to host established and creditworthy loans on liwwa’s marketplace. In reviewing loan applications, we follow a streamlined approach using a refined review process, a comprehensive approach to due diligence, and extensive credit analysis.

The following diagram illustrates the process from the point an application is submitted until it is listed on liwwa’s marketplace.

![borrower application flow.png](https://liwwa-cms.s3.amazonaws.com/borrower_application_flow_c1ca4e29e8.png)

**Initial Submission & Screening**

Business owners are typically referred to us by their friends, via advertisements or through our dedicated sales team who reach out directly to potential borrowers.

Business owners submit their online applications in a fast and easy process that takes less than 3 minutes to complete. After they submit their completed applications, they either get auto-accepted or auto-rejected. For applications to be automatically accepted, **the company submitting the application needs to meet the following criteria:**
 - Registered in Jordan
 - Actively operating for at least 1 year
 - Have a company bank account in good standing for at least 6 months
 - Have a current Trade License and Commercial Registration Certificate
 - Have minimum revenues of JOD120,000 in the last fiscal year
 
**Legal and Eligibility Checks**

Automatically accepted applications move to the next stage where liwwa validates eligibility and ensures that each application is indeed qualified based on the outlined criteria.

Within 24 hours of the application submission date, liwwa requests supporting documentation from the applicant in the form of financials, income statement, balance sheet and cash flow statement, a copy of the bank statements, company registration, and finally a copy of the owner/owners ID.


We then run a legal review and conclude eligibility checks, covering both financial and non-financial aspects, utilizing the information provided in the application as well as external database and other external records.

**Credit Assessment**

The application then is transferred to the credit team where they study all related details including but not limited to the requested financing amount and tenor, as well as means of repayment.


After all information is collected, the credit team uses liwwa’s proprietary financial models to analyze the various data points provided in the application. Once the review is complete, the final amount and loan terms are determined.


**By the end of the credit assessment, each loan is given a credit score, which is based on the triangulation of three main inputs:**

 1. The **applicant's business experience**: this includes their success record, their personal record, and overall integrity.
 2. The **quality of the business**: the applicant's business model, market position, competitive landscape, in addition to historical and projected financials.
 3. The strength of the **business’s financial position**: based on various financial indicators with a particular emphasis on credit profile.

**On the marketplace**

Once the contract is signed, the loan is then **hosted on liwwa’s loan marketplace.**


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.

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