Publications

Microfinance in Palestine in 2005: Overview of Impact and Potential Recommendations

The main challenge for the microfinance stakeholders is to bring this young sector to maturity. Based on comparison with post-conflict Bosnia, or culturally comparable Middle East neighbors, a well-implemented microfinance framework could help MFIs (MicroFinance Institutions) serve as many as 100,000 micro and small entrepreneurs within 4 to 6 years – in the hypothesis of a gradually improving political situation, meaning further Israeli disengagement and improved Palestinian law and order.

In time of Intifada, the vibrant Palestinian microfinance sector has spectacularly demonstrated its potential to contribute to the socio-economic survival if not progress of the Palestinian society, with a growing number of clients (approaching 30,000 by end 2005). This performance has been achieved in spite of the sharp economic downturn generated by the second Intifada: after a five-year delay, the performance of the sector is back to the level of the pre-Intifada, thanks to the remarkable adjustments made by the most flexible and specialized institutions, the only microfinance programs that could survive.

In the perspective of a potential and gradual phasing out of the Israeli occupation, microfinance is clearly a tool to be developed in order to distribute an hypothetic economic growth to all sectors of the Palestinian societies: the entrepreneurship qualities demonstrated by tens of thousand of women and men mostly from the informal sector has to be supported through adequate microfinance, itself promoted by the Palestinian government and non-government agencies, the national and international financial sector as well as the international donors.

The main challenge for the microfinance stakeholders is to bring this young sector to maturity. Based on comparison with post-conflict Bosnia, or culturally comparable Middle East neighbors, a well-implemented microfinance framework could help MFIs (MicroFinance Institutions) serve as many as 100,000 micro and small entrepreneurs within 4 to 6 years – in the hypothesis of a gradually improving political situation, meaning further Israeli disengagement and improved Palestinian law and order. This would represent 800,000 Palestinians (roughly 20% of the population) benefiting from the socio-economic support of microfinance. The available micro and small lending supply (currently $30Mio outstanding loans), the need of additional loan capital (around $100Million in order to reach the previous target) is not high compared to what many donors are ready to invest into microfinance and also compared to what commercial banks and international investors would be ready to invest in financially sustainable MFIs. Furthermore, the number of beneficiaries, the amount to be dedicated to microfinance is really low in the framework of the total aid that will be available for the building of the Palestinian State.

A research funded by Harvard University, Kennedy School of Government, the Center for International Development and the Women and Public Policy Program