Many years ago I was an undergraduate student at the back then only university in the UAE - the United Arab Emirates University in Al Ain. For those who remember Al Ain in the early 1980s, it was an oasis in more ways than one. Two hours inland by car from both Abu Dhabi and Dubai, Al Ain’s greenery and water fountains, its cool breezes, and friendly social life gave living there a special flavor.

Back then we did not have internet or streaming services, or satellite TV for that matter. My windows to the world were two publications in print form: the Atlantic Monthly magazine, and a great daily newspaper called the International Herald Tribune. Both reached me in Al Ain by regular mail several days, or weeks, late.

The print edition of the Tribune was an amalgamation of articles from the New York Times, the LA Times and other media. It was principally sold outside the United States - in Europe, the Middle East and other geographies. It spoke to a global, English speaking audience and covered politics, economics, finance and had a cultural section detailing latest theater and opera productions, art exhibits by international city, as well as book reviews.

It was in the Tribune back then that I read an interview with a western banker working in the Gulf explaining Islamic finance to western readers. The banker, whose name I no longer recall, said that Islam treated money as a medium of exchange and not as a commodity. A medium of exchange can be used to exchange goods and services and benefits (profits) can be had from such exchanges. But, not being a commodity, Islam does not allow for the buying and selling of money for a price (i.e. interest). And that is the key philosophical underpinning of Islamic finance.

Globally, Islamic finance started in the 1960s in Pakistan and Egypt, with special banks focused on the agriculture sector giving farmers interest free loans. The Jeddah Conference in 1975 was a milestone and an event that put in place Islamic finance rules and regulations. The establishment of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFO) in 2000 in Bahrain is another major milestone in the development of Islamic finance worldwide.

The emergence of Islamic banks, non-bank Islamic finance institutions, and Islamic trusts followed with the setting up of the Dubai Islamic Bank in 1976, Faisal Bank (Saudi and Egypt) in 1977, and the Islamic Bank of Sudan in 1977.

In Jordan, the Jordan Islamic Bank was established in 1978 under a temporary law. The Banking Law for the year 2000 had articles (50 to 58) that regulated Islamic banks in the Kingdom, with four Islamic banks currently in operation: Islamic International Arab Bank, Safwa Bank, Jordan Islamic Bank, and Al Rajhi Bank. Additionally, 17 non-bank Islamic finance institutions and 3 Islamic insurance companies offer their services to clients under the supervision of the Central Bank of Jordan.

Two main products are used by Islamic banks in Jordan: Murabaha and Ijara. In a Murabaha contract, the bank buys an asset or a commodity and resells it to the client at pre-agreed upon price and time period. The asset or commodity ownership transfers to the client immediately upon sale.

In an Ijara (lease) contract, the bank buys an asset or a commodity, leases it to the client, and the client makes monthly payments to the bank over an agreed upon period of time. The ownership of the asset or commodity transfers to the client after the final lease payment.

As to sukuks, the legal and regulatory framework in Jordan has been in place since 2014. Sukuks are financial instruments (contracts) between Islamic fund providers and fund users, with three main contracts in use in Jordan: Murabaha and Ijara, as well as Istisna’ (build/construct/manufacture an asset and sell it to a client over time by installments).

For funding from Islamic banks in Jordan:

  • there are monthly payments to the bank - fixed and/or floating (based on JODIBOR)

  • the two main contracts in use (Murabaha and Ijara) cannot be traded after issuance and placement

  • Islamic banks serve retail clients, MSMEs, large firms, and the Government of Jordan and its affiliated companies and entities

  • Jordanian Islamic banks cannot fund companies based outside Jordan.

As to funding via sukuks in Jordan:

  • there are semi annual payments – fixed, and typically at lower yields than direct Islamic bank funding

  • more appropriate for large size funding (more than JD 3 million)

  • sukuks are typically issued and placed with investors by using a Special Purpose Vehicle

  • some sukuks are tradable after they are issued and placed - holders of sukuks can sell them to other investors before maturity

  • good for medium and large size firms, as well as Government of Jordan and its affiliated companies and entities

  • non-bank financial institutions can issue Mudaraba sukuks to fund retail clients and SMEs.

The process of obtaining funding from Islamic banks in Jordan starts out with an application submitted by the client, followed by a credit analysis and a cashflow analysis conducted by the bank. Guarantees are also required. These can be Government of Jordan or other third party guarantees, land or real estate, the project or the asset to be financed, or ring fenced cashflows of the project or its owner.

For sukuks, a feasibility study is required, coupled with a risk assessment, a prospectus, as well as guarantees.

A salient feature of a sukuk issue in Jordan is the Special Purpose Vehicle (SPV) structure. A Special Bylaw regulates the establishment and management of Sukuk SPVs, which are private shareholding companies established with the purpose of separating the financial accounts of the sukuks from those of the issuers of the sukuks. As such, the SPV is an intermediary between the issuer of the sukuks and the investor (sukuk holder). The SPV acts as an agent on behalf of the sukuk holder to collect payments from the issuer (both interim and final payments). The SPV also manages the extinguishing of the sukuks at maturity.


  • is established by issuer of the sukuks, and its ownership transfers to the sukuk holders after the sukuks are issued and placed

  • is managed by a team approved by the Jordan Securities Commission, the capital market regulator

  • cannot be liquidated by the issuer

  • its capital is not pre paid – but paid only when the sukuks are issued and placed

  • should be registered in Jordan.

Currently, there is a total of JD 584 million of sukuks outstanding in Jordan, all issued by the Government of Jordan and related entities. These are:

  1. Ministry of Finance - JD 34 million - September 2016 for five years - Ijara - Construction of Ministry building - Yield at 3.01%

  2. NEPCO - JD 75 million - May 2016 for five years - Murabaha - Purchase of liquified natural gas - Yield at 3.5%

  3. NEPCO - JD 75 million - March 2017 for five years - Murabaha - Purchase of LNG - Yield at 4.1%

  4. NEPCO - JD 150 million - August 2018 for five years - Murabaha - Purchase of LNG - Yield at 5.47%

  5. NEPCO - JD 225 million - October 2021 for five years - Murabaha - Purchase of LNG - Yield at 3.55%.

Market estimates indicate that the four Islamic banks in Jordan have around JD 2.45 billion in dry powder, with an additional JD 220 million at the 17 non-bank financial institutions, all looking for funding and investment opportunities.