The main obstacle in the way of SME’s growing and developing their products and services is their limited access to capital. Local banks usually require guarantees that can reach up to 200% of the loan value. With such extreme requirements, SMEs are unable to get the funds needed to develop their businesses.
In a step towards strengthening SMEs, and increasing their access to capital, PIF, in partnership with a number of local and international organizations, launched the SMEs Loan Guarantee Facility (LGF) in 2008. LGF aims to support the private sector by offering local banks the guarantees needed to loan SMEs over $230 million over the next five years. Loans will be offered to both existing SMEs and startups to enable them to develop their assets and expand their operations.
PIF expects that the program will revitalize the Palestinian Economy and will help create more than 15 thousand job opportunities for Palestinians over the next five years.
Successful Local and International Partnerships
PIF has a number of strategic partnerships with many local and international organizations. In addition to PIF’s partnership with nine local banks in implementing this program, it has partnerships with several prestigious international organizations that support the program. Two of the international organizations that have been supporting LGF are the Overseas Private Investment Corporation (OPIC) and the Middle East Investment Initiative (MEII). The program also receives various sorts of support from international parties. For example, the Norwegian government has provided $5 million in funding to cover the operational expenses of the program. Similarly, the United States Agency for International Development (USAID) has donated $2 million to cover for the technical assistance expenses offered to banks by the program.
Active Role for Banks
Nine Palestinian local banks are currently involved LGF. Banks take the responsibility of interacting with SMEs directly by offering them the loans needed. Since guarantees that reach 70% of the loans value are covered by the program, banks get to focus on locating viable projects with promising growth and return potential rather than focusing on (collateral to minimize) their risk.
It is worth mentioning that LGF is helping transform banks’ lending mentality from one that depends on over collateralization to one that focuses on cash flow and project feasibility.
As part of the program, PIF is offering bank technical assistance and on-the-job training to develop the banks’ credit analysis and loan monitoring capabilities.
The number of SMEs benefitting from the program increase day by day, and they are distributed all over the country. Moreover, the SMEs benefitting from the program come from different economic sectors. By the end of 2010, the number of loans offered reached 354 loans with a total value of $67 million. On average the loans offered range from $10 thousand to $200 thousand.
Economic Sectors Benefitting from the Program
PIF has ensured that the benefits of the program are distributed among all economic sectors. The results collected at the end of 2010 were very encouraging, especially in a number of vital economic sectors like the trade sector, services sector, and the industry sector. The trade sector was the sector with the greatest number of loans, about 28% of all loans offered. The services sector followed with 21% of all loans offered, and in third place came the industry sector at 20%. Other sectors that benefitted from the program as well were the construction, transportation, tourism, telecommunication and agriculture sectors.
Palestinian Cities that Benefitted from the Program
One of LGF’s goals was to ensure that all Palestinian cities benefit from the program. The 2010 results indicate that the program has managed to achieve this goal effectively.
Thousands of Job Opportunities Created by the program
By the end of 2010, more than 3,500 job opportunities were created through projects that were funded by the program. Moreover, by focusing on viable and feasible projects that have sustainable returns and that will vitalize the Palestinian economy, it is expected that the program will create an additional 15 thousand job opportunities throughout the country over the next five years.
In addition, the program has ensured that women have their fair share of its benefits. By the end of 2010, 27% of the job opportunities created by the program were taken by women. This kind of initiative both encourages women to participate in the job market and supports them financially and economically.