Under the patronage of Prime Minister Dr. Salam Fayyad, the PMA organized in partnership with the International Finance Corporation (IFC) and The Association of Banks in Palestine in the city of Jericho, a Palestinian International Banking Conference for 2013.
One of the main objectives of the conference is to increase the attention and strengthen the awareness of the importance of the SME sector as the most important arm of the process of economic and social development in Palestine, and to raise the readiness through the provision of appropriate ways to improve access to finance and empower SMEs. The conference also aimed at supporting the dialogue and partnership between public institutions and private sector.
The conference hosted both local and International experts on the subject of SME finance with a view to learn from other countries experiences in this field. The conference was attended by Banker, public institutions interested in private sector development, NGOs and Donor agencies.
The recommendations of the conference are listed below:
Recommendations presented at the Small and Medium Enterprise National Conference addressed to the Palestinian Monetary Authority on promotion of SME lending in Palestine.
- All banks should use the same definition for SME loans reported to the PMA. This will help all stakeholders draw conclusions on whether progress is being made for this sector and also to design effective strategies for this segment. For this to happen a more appropriate definition is needed and we suggest that the PMA and banks use the same definition. Unfortunately, the MONE definition of SMEs does not reflect the banks’ SME portfolio composition and is therefore not applicable.. It is recommended that for the purpose of this document and the recommendations listed below the Bankers ‘Association should lead the effort for reaching an appropriate definition.
2. A committee of professionals is to be established to follow up on conference recommendations and to meet on a periodic basis to review strategies for SMEs and make further recommendations to the various stakeholders.
3. Waive the 10% repayment requirement for rescheduling requests on SME loans on condition that non performing loans are rescheduled on cash flow basis in order to return the non performing SME loans to accrual status and reduce the burden of never ending late penalty fees on the SME. A two year pilot can be tested with non performing SME loans under EPCFG and LGF to ensure that rescheduling only occurs based on adequate cash flow analysis of the borrower’s debt service capacity as independently reviewed and approved by each guarantee program. Data collected by each guarantee program can then be analyzed to scientifically determine impact of the pilot phase. Potential miss-abuse of loan loss provisioning is mitigated by the guarantee of each program.
4. The PMA can encourage SME lending by providing banks with incentives to increase their SME portfolios. One such incentive is to waive the 1.5% general reserve requirement on the total SME portfolio guaranteed by either EPCGF or LGF. This will encourage competitive pricing and sustainable structure to benefit SME’s. Furthermore, PMA should be looking at medium term and long term strategies to incentivize banks to further expand their SME lending portfolios in Palestine.
5. The PMA is to push through the immediate adoption of the secured transaction law so that the law of movable asset registry is implemented as quickly as possible. This will not only support leasing but significantly support SME lending as SMEs can use movable assets to secure additional credit from their banks.
6. Improve financial literacy of SMEs, especially “unbanked” SMEs, in order to be able to communicate and understand bank credit underwriting requirements. SMEs, especially ones that lack collateral, must learn to provide creditors with basic financial information to facilitate cash flow analysis and appropriate loan structure that meets the needs of the SME and its debt service capacity. Although we are many years away from international standards of financial disclosure along the lines of IFAC, it is imperative that a gradual improvement of financial reporting and disclosure needs to commence to bridge the gap on the demand side of the access to credit equation. SMEs must also learn to differentiate between business and personal income, so as too often the funds are commingled resulting in business failure or insolvency. Creditors should require financial discipline and transparency from SME clients to properly assess credit risk and ensure that the borrower’s debt service ability is not constrained by improperly structured credit. The PMA could introduce “guidelines” of minimum financial information for SME loans above a certain threshold. Banks that choose to ignore the guidelines maybe required to book higher loan loss reserves.
7. Work on setting up and encourage advisory services in order to support SMEs and work on building management and other capacities.
8. Encourage loans for Start up businesses and increase their share in the lending portfolio.
9. Set up Entrepreneurship education and training programs in the Palestinian Universities in order to promote, encourage and support new initiatives.