OPT: Microloan demand grows, despite the risks
Mahmud al-Haj at work in the Ramallah vegetable market
RAMALLAH, 19 April 2012 (IRIN) - The demand for microloans has risen steeply in the West Bank and Gaza Strip in recent years, according to data from the Palestinian Network for Small and Microfinance (Sharakeh), which represents 11 microfinance non-profit institutions whose total loan portfolio was US$75 million by the end of 2011.
Between 2007 and 2011, the number of active microloans in the West Bank and Gaza Strip rose from 20,000 to more than 43,000. This trend is likely to continue, said Sharakeh, predicting that by 2015 the number of loans will reach 77,000. The number of active clients receiving loans from microfinance institutions has grown by an average of 27 percent annually since 2007, he added.
“Microfinance is on the rise in Palestine because it serves small businesses which are growing in number and importance,” Shireen al-Ahmad, a division chief at the Palestine Monetary Authority (PMA), told IRIN. Trying to start a small business is one way to cope with the challenges of public sector employment - but it can be a precarious existence given the state of the Palestinian economy.
Demand for microcredit, designed for borrowers who typically lack collateral, steady employment and a verifiable credit history, has spread by word of mouth, said Alaa Abu Halawa, programme coordinator at Sharakeh, adding: “The people realized the benefit of microfinance. And its growing importance is attracting more investors.”
Besides being promoted as a tool for providing the poor with financial access, microloans in the occupied Palestinian territory (oPt) have become an attractive alternative to normal credit from banks for any small businesses, say Palestinian microfinance institutions.
“Banks require high collateral and complicated loan procedures. We don’t,” Sameer Kraishi, a microcredit manager at the Arab Centre for Agricultural Development (ACAD), told IRIN. “The Palestinian case is special…Our microloans are high compared to developing countries like India, usually about $5,000.”
During his work for ACAD, Kraishi has seen many Palestinians who successfully built up their business with the help of microloans. But equally, he has seen many of them fail. The persistent financial crisis of the aid-dependent Palestinian Authority (PA) and the resulting impacts on the general West Bank economy affect small businesses heavily, he said.
Lack of donor support
According to the PA senior official Ghassan Khatib, the PA’s salaries were once again delayed for several days this month. “The PA cannot fulfil its payment obligations because of a lack in foreign funding. The outlook for this year does not look good,” he told IRIN.
One of the reasons why economic growth in the West Bank slowed down in 2011 was foreign donors’ failure to provide sufficient support to the PA, the World Bank said in a recent report
. In 2011, the PA required $1.5 billion in budget support, but eventually only received about $814 million. The budget for 2012 is expected to have a recurrent budget deficit of around $1.1 billion.
“Economic deterioration is a main reason for a rise in microfinance, which together with the PA financial crisis resulted in high unemployment and increased the poverty rate. This, in turn, lead people to look for private projects to earn their living,” said Sharakeh’s Halawa.
But small businesses are dependent on the spending of government employees. “When salaries are cut, the demand for goods and services goes down,” Samer Barghouti, general manager at ACAD, told IRIN, adding: “As a result, our clients often face difficulties paying back their microloans, and this creates risks for them, but also for us, as an institution.”
Failure never far away
One of ACAD’s clients hit by the economic slowdown is 43-year-old Mahmud al-Haj, a vegetable seller in Ramallah’s central market.
“Over the last year, I have made less and less profit. Many of my customers are PA employees. They just don’t have enough money when their salaries come too late, so they simply stop buying,” he told IRIN.
Some years ago he had made the equivalent of about $1,600 per month, now his monthly profit barely exceeds $500. He had borrowed US$3,000.
“I hardly sell 200kg of vegetables a month,” he said, adding: “I fear that once the loan is used up, I will not be able to continue. I need to pay taxes to the municipality. I have to take care of my family. I need to pay for my children’s school, for electricity, food, and haven’t even paid back most of the loan I took.”
Almost half of micro-loan projects fail in one way or another, according to Shaker Saadeh, manager of ACAD’s Ramallah field office.
“Many of our clients used to be unskilled labourers in Israel, never acquiring the knowledge necessary to run a business. Others use microloans as a means to change profession, like a carpenter who suddenly starts an agricultural business, but doesn’t really know how to do it,” he added.
“Over the last seven years I received 15 microloans from different organizations. I used to be a wage worker, but eventually opened my own sewing workshop,” 48-year-old Na’ma Shamali said, while pulling fabric through a sewing machine in her shop in Ramallah.
Her current loan amounts to $3,000, but past experience has taught her to invest the borrowed money wisely. “At the beginning of every month I set my priorities. What do I really need? So recently I bought a new automatic sewing machine for 9,000 shekels [$2,400]. But at the beginning of every month, I pressure myself to work a lot, so I can pay back the loan,” she said.
Thanks to the growth of her business, she and her husband were able to buy the house they previously rented and send their children to a private school. “I am making 5,000 shekels [$1,320] of profit [per month] today. I am satisfied.”
provides a mechanism for women’s empowerment beyond mere financial success has been widely debated in the past.
In oPt, real empowerment is often hindered by the traditional roles women are assigned to, said Nisreen Swelem, West Bank regional manager at the Palestinian Businesswomen’s Association (Asala), which is currently providing microloans to about 4,000 Palestinian women.
“It happens often that women continue to do the hard work while their husbands take over the business. We simply cannot control the cultural aspects,” Swelem told IRIN.
In particular in the field of agriculture, women often remain unpaid family workers and as such are invisible contributors to the economy, Asala's research has shown
“I try to raise awareness. I ask them, who controls the money?” Swelem said.
“There is still a lot to do on the level of gender awareness. But in one way, the positive impact of the gender meetings is obvious. Many of the women that take the trainings later become trainers themselves.”