PALESTINE SME GUARANTEE FACILITY II

Promoter – Financial Intermediary

PALESTINE INVESTMENT BANK PSC

Location

• Palestine*

Description

The operation consists in a guarantee facility to the Palestine Investment Bank covering a loan portfolio to small and medium-sized enterprises (SMEs).

Additionality and Impact

The proposed partial portfolio guarantee to Palestine Investment Bank is intended to improve access to finance for SMEs in Palestine.

SMEs are the backbone of the Palestinian economy as they account for over 95% of local businesses, contribute to more than 55% of the GDP, and employ 85% of the active working population. Limited access to financial services from formal financial intermediaries represents one of the main challenges for SMEs, a problem that limits their contribution to economic growth and employment. Moreover the segment has been severely hit by the consequences of the COVID-19 pandemic.

The operation will address the market failures that hinder credit to Palestinian SMEs, such as information asymmetries and capacity constraints. The conditions of the loans are prohibitive, particularly in terms of collateral requirements and pricing. Furthermore, SMEs are underserved because financial intermediaries do not internalize the positive social externalities of financing (e.g. support to local employment). The guarantee will mitigate the credit risk borne by Palestine Investment Bank, enabling it to lend to SMEs with reduced collateral requirements and/or lower pricing. 

The operation is strongly aligned with external EU policies, such as the flagship initiative for Palestine promoting private sector-led growth and job creation. The operation would also contribute to the strategic orientations of the European Fund for Sustainable Development Plus (EFSD+) under NDICI Global Europe, the EU-Palestine Action Plan and the Palestine National Policy Agenda.

Objectives

The primary objective is to enhance access to loan finance for Palestinian SMEs through improved terms and conditions, especially reduced collateral requirements and/or lower financing costs. Consequently, the operation contributes to economic resilience and employment generating activities.

Sector(s)

• Credit lines - Credit lines

Proposed EIB finance (Approximate amount)

EUR 3 million

Total cost (Approximate amount)

EUR 26 million

Environmental aspects

The EIB will require that implementation of the project will be done in line with the principles of EU environmental legislation and EIB Environmental and Social Standards.

Procurement

The EIB will require that implementation of the project will be done in accordance with the EIB's Guide to Procurement.

Status

Signed - 22/06/2023