Financial Sustainability and Social Justice: A Regulatory Framework for Loan Control and Mitigation Of Default Risks in Jordanian Islamic BANKSn

Abstract

This study aims to achieve two primary objectives: first, to analyze loan default ratios at the Jordan Islamic Bank during 2023 and 2024 in order to identify recent trends in credit risk; and second, to examine the impact of applying a borrowing cap, whereby total debt obligations do not exceed 45% of a client’s income, on reducing defaults and promoting social justice. The significance of the study lies in its attempt to bridge the gap between the financial sustainability of banks and the protection of society from excessive indebtedness, which reflects the essence of Islamic finance in balancing economic and social dimensions. The findings revealed that the ratio of non-performing loans at the Jordan Islamic Bank remained relatively low at approximately 2.2%, despite a slight increase in the absolute value of defaulted debts. The study recommends the implementation of a unified national system for financial obligations that encompasses banks and other institutions, the enforcement of borrowing cap policies (45% of income), enhanced financial literacy among clients, and the development of advanced data analytics tools to proactively monitor risks. These measures would not only strengthen the financial sustainability of the Jordan Islamic Bank but also contribute to the promotion of social justice.