Meeting the Demand for Microfinance in the West Bank and Gaza

This paper discusses an assessment of the Palestinian microfinance sector done by CGAP. The paper highlights the existing environment of microfinance including:

• The demand for microfinance services in the West Bank and Gaza;
• An overview of Palestinian microfinance sector:
  • Number of MFIs operating in the region;
  • Adequacy of management information systems;
  • Types of financial services provided to the poor.
• The extent of dependence on donor funding for microfinance;

The paper mentions the legal forms currently available for engaging in microfinance:

• NGO;
• Cooperatives;
• For profit company;
• Nonprofit company;
• Banks;
• Specialized lending institutions and other finance companies.

The paper also describes the legal and regulatory issues pertaining to microfinance highlighting:

• The unlikely expansion of NGO operations as they are:
  • Not entitled to raise equity from investors;
  • Required to get their legal documents signed by the chairman, limiting efficient operations in multiple locations;
  • Regulated by MOI which is not an appropriate body to regulate financial institutions.
• Lack of appropriate regulator for:
  • MFIs doing on-lending business;
  • Savings and credit cooperatives.
• Disadvantages for a for-profit MFI with respect to tax treatment.

The paper provides recommendations to donors and government officials on the following areas:

• Capacity building;
• Infrastructure supporting microfinance;
• Funding;
• Regulatory and policy framework for financial institutions providing microfinance services;
• Government policy towards poor Palestinians who are not ready to be consumers of conventional microfinance services.