The U.S. Agency for International Development’s Small and Microfinance Assistance for Recovery and Transition program, launched in late 2006, was designed to expand small and microfinance institutions. Now agency officials are considering lowering bank loans in an effort to make services more suitable for poor Palestinians.
To overcome restrictions on movement, USAID is also looking at branchless banking.
According to Fadi Abdellatif, a USAID project management specialist, the SMART project came in a time of crisis. In 2006, Palestinian government employees did not get paid, and repayments to microfinance institutions plummeted. USAID interfered, and soon found that the struggling organizations needed more than just funding.
“They need direction on how to proceed, how to develop products, and how to interact with their clients, so they can get money back and re-lend,” Abdellatif said.
Five Palestinian institutions received a combined $1.2 million as part of a SMART grant agreement signed on May 28, 2008, in Ramallah. Its purpose is to develop and reach new markets by launching new types of loans, automate systems and improve workforce skills.
USAID is interested in “downscaling” commercial banks, according to Abdellatif, who designs, supervises and manges finance projects for USAID’s Private Enterprise Office.
“Let the banks serve the microentrepreneurs, get them to decrease their loan size and give out loans to microentrepreneurs,” he told Devex in June. “Microfinance institutions in the West Bank only serve 10 percent of the demand, so if banks get engaged it should be wonderful.”
Downscaling would help to broaden services for micro and small enterprises and low-income Palestinian households, he said. USAID is already involved in loan guarantees and in training loan officers in using these guarantees. The idea is to give banks an incentive and security in providing smaller loans.
New infrastructure
Restrictions on movement and actions are often seen as obstructing development efforts. USAID has placed scanners in some checkpoints to facilitate the passage and screening of goods, and is looking at establishing branchless banking through cellular phones to lower transaction fees. USAID was planning to have consultants look at the feasibility and regulatory framework, Abdellatif said.
The ICT sector allows donors to bypass travel restrictions, and enables a wide array of products in the West Bank and Gaza, Abdellatif noted. If Palestinian firms cannot export, if they have difficulties in passing their goods through checkpoints, they are facing a hard time, he added.
The World Bank expects real gross domestic product in the Palestinian Territories to be 18 percent lower in 2007 than at its peak in 1999. Following the second Intifadah, which started in 2000, the Palestinian economy shrank. The private sector the economy’s backbone here, and banks the backbone of the private sector, according to Abdellatif. USAID’s private sector support is geared toward Palestinian agriculture, microfinance, and tackles the modernization of financial institutions, creation of enterprise, and trade.
One of USAID’s goals is to help Palestinian firms do business abroad. The challenge is to connect Palestinian and international companies so that international business leaders learn about the Palestinian Territories’ capacities, Abdellatif said. He is confident that companies will discover West Bank and Gaza as a place to outsource and do business.
USAID has brought in consultants for studies on national savings, microinsurance and agricultural insurance. Abdellatif sees agriculture as the most promising industry in the Palestinian Territories.
“They can easily get technology, he said, “and produce and export lots of products.”
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About the author
Mikael Fridell
Mikael Fridell earned a master's degree in economics at the University of Uppsala and a bachelor's degree in economics at the University of Lund. His work and internship experiences encompass the public and private sectors and include a stint at an educational institute in Jerusalem, internship at the Swedish embassy in Manila, field study on the informal sector and microcredit in the West Bank, and positions at the Ministry for Foreign Affairs and the SEB Financing Corp. in Stockholm. He won a Devex fellowship in February 2008, and worked out of our Barcelona office. Mikael is fluent in English and Swedish is his mother tongue.
