MEII facilitated the first ever commercial loan to a leading Palestinian microfinance institution (MFI), FATEN, which lends primarily to female entrepreneurs. The loan provided FATEN with needed capital for new lending. FATEN’s lending potential was becoming restricted due to decreased donor capital and increased competition for that capital from other Palestinian MFIs.
Microbusinesses are an important piece of the Palestinian economy, particularly for female entrepreneurs. Despite their importance, demand studies have suggested that less than 10 percent of the potential microfinance market is being served and there could be an estimated $280 million in credit demand from 190,000 potential micro and small business clients.
There are nine active microfinance institutions (MFIs) operating in the local market, all of which are dependent on donor funding for their capital. Donor financing has increasingly declined in recent years, which has had a direct impact on the Palestinian microfinance market. MFIs are increasingly competing with each other for the same donor capital, which has restricted MFI lending potential.
The leading MFI in the market, FATEN, sought to graduate from a not-for-profit, donor dependent model to a for-profit entity that can access commercial credit. This transition would help both FATEN and the entire MFI market as it would result in less competition among the existing MFIs. Even though FATEN had large capital reserves banks were unwilling to extend the company a loan, because a commercial loan to an MFI had never been tried before.
Seeing the significant developmental impact the loan would have, MEII began working with the bank and borrower to resolve the parties’ concerns. It did X, Y, and Z. As a result of MEII’s assistant and partial financial guarantees from MEII partners, two banks approved loans to FATEN. These were the first-ever commercial loans granted to a Palestinian MFI from local banks.
FATEN has been able to significantly expand its work since receiving the loans. The company, which began operating in 1995 out of a Save the Children-funded program, has 56 loan officers working out of 10 branches. The company’s loans average less than $5,000 and 85 percent of its borrowers are female. MEII’s work in facilitating the loan approval process will serve as a template for MEII in helping other local and regional MFIs fain access to commercial credit.