Monday, December 5, 2005

Ramallah, 2 Dec. (AKI) – Five years on from the start of the second intifada against Israeli occupation, Palestinians are seeking to rebuild their shattered economy, but access to finance for small-scale entrepreneurs to kickstart development is scarce, says Khalil Shiha, head of development at of the Palestinian Agricultural Relief Committee (PARC). “Currently micro entreprises cover 91 percent of the Palestinian economy; this reflects the importance of the future of microfinance,” he told Adnkronos International (AKI).

Statistics highlight the grim conditions people living in the Palestinian Authority (PA) territories are facing. Some 37 percent of families lack food security and 9.9 percent of children suffer from malnutrion compared to 7.5 percent in 1999.

This is not surprising given that local revenue has decreased by 43 percent compared to the year 2000, uneployment stands at 27 percent and the percentage of the population who have jobs in Israel shrunk to nine percent from 20 percent in 1999.

Despite a decrease in violence over the last year, coupled with renewed hope that the peace process, the prospects for development remain severely hampered by a number of factors, according to Shiha.

In his view, these include the difficulty to move goods across Israeli-controlled borders – a situation which in particular penalises those involved producing and trading in perishable products, such as fruit and vegetables – and the fact that Palestinians have no control over natural resources, such as water and land.

In this context, and within the limited and unorganised Palestinian internal market “most of the economic potential present in the Palestinian territories should be directed towards micro entreprises, dependent on local savings and small funding with minimal risks, and with the ability to be geographically spread out,” Shiha explains.

In the almost total absence of commercial banking involvement, only 10 percent of micro enterprises are served with loans, and micro lending provided by donors and non-governmental organisations – such as PARC – is the only financial service available to the poor, Shiha points out in a paper he will present at an international Euro-Mediterranean Conference to be held in Rome on 5-6 Dec.

PARC for example has launched a savings and credit scheme that provides self-employment opportunities for more than 1,450 women through providing credits for the start of productive and income-generating projects, from the manufacture of handicraft product to hairdressing salonns. To date 1.5 million dollars has been distributed. The scheme has assisted in alleviating poverty and unemployment by contributing to the families? income and ensuring resources for women, but many more people in the territories need access to microfinance for its impact on development to be widespread.

In an attempt to overcome what Shiha calls the “substantial gap” between the demand and supply of microfinancial services in Palestine, the PA has earmarked about 150 million dollars in its 2005-2007 medium term development plan for funding and facilitating the small-scale private sector. The PA also intends to create an employment and social protection fund which will provide financing for micro-lending.

Such state intervention needs to go hand-in-hand with measures to cut red tape and do away with rigid restrictions currently hampering the establishment of private microlending institutions. Currently providers of finance need to show they have a capital investment of some 20 million dollar to operate. In the microcredit sector, an investment of between five and ten million would be more realistic, Shiha argues.

Ultimately much will depend on greater involvement in the microcredit sector by commercial banks including the Islamic financing sector which is growing, not just in pre-dominantly Muslim nations but worldwide, but is yet to establish a firm presence inthe Palestinian territories.

Source: Adnkronosinternational (link opens in a new window)