The small and medium-sized enterprises (SMEs) are the driving force behind the economic development in many countries, particularly in emerging markets. They stimulate private ownership and entrepreneurial skills, generate employment, help diversify economic activity and make a significant contribution to exports and trade. The governments whose economic policies are rooted in market principles consider the promotion of the SME sector as a key objective.

SMEs have consistently suffered from major hurdles in accessing sources of finance mainly due to lack, insufficient or unacceptable collateral. Not only that these factors could discourage the creation of new enterprises, but also directly affect the continued viability and sustainability of existing enterprises.

The European Palestinian Credit Guarantee Fund (EPCGF) was established to overcome these obstacles. EPCGF is a development programme for the Palestinian Authority financed by the European Commission and the Federal Republic of Germany through KfW Entwicklungsbank and European Investment Bank to enhance SME competitiveness and, on a sustainable basis, support income generation, employment creation, and poverty reduction. The EPCGF represents a good mechanism and opportunity for participating partner banks to tap the often-neglected SME market segment and broaden their outreach by making access to finance easier by this large sector of the economy through a risk sharing formula. The Fund provides an additional level of comfort to lending institutions in dealing with SMEs given the elevated degree of risk associated with this segment of the market.