WEST BANK/GAZA MICROFINANCE INSTITUTIONS IN

UNCLAS JERUSALEM 000159 SIPDIS SENSITIVE SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/SHAMPAINE/STEINGER; NSC FOR ABRAMS/DORAN/WATERS; TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON E.O. 12958: N/A TAGS: ECON EFIN PGOV EAID KWBG SUBJECT: WEST BANK/GAZA MICROFINANCE INSTITUTIONS IN SURVIVAL MODE REF: 06 JERUSALEM 3987 ¶1. (SBU) SUMMARY: MICROFINANCE INSTITUTIONS SERVING PALESTINIANS ARE STRUGGLING TO SURVIVE THE STEEP DOWNTURN IN THE PALESTINIAN ECONOMY. THE NUMBER OF LOANS ISSUED MONTHLY BY UNRWA, THE LARGEST MICROFINANCE LENDER IN THE WEST BANK AND GAZA, HAS DROPPED 77 PERCENT SINCE THE FORMATION OF THE CURRENT PA GOVERNMENT. THE GENERAL MANAGER OF THE PALESTINIAN INSTITUTION FOR LENDING AND DEVELOPMENT (FATEN) RECENTLY ANNOUNCED A 300 PERCENT DROP IN THE TOTAL VALUE OF LOANS GRANTED SINCE 2005. THE FAILURE RATE OF MICROENTERPRISES HAS JUMPED SHARPLY, PARTICULARLY IN GAZA. LENDERS ACKNOWLEDGE THAT MANY NEW LOAN RECIPIENTS ARE USING THE CREDIT TO COVER LIVING EXPENSES. END SUMMARY. ¶2. (SBU) SAMAR EL AROUKI, AREA LOAN SUPERVISOR FOR UNRWA'S MICROFINANCE AND MICROENTERPRISE DEPARTMENT (MMP),TOLD ECONOFF JANUARY 22 THAT HER OFFICE CAN NO LONGER COVER ITS OPERATING COSTS. STRUCTURED AS A SELF-SUFFICIENT MICROFINANCE INSTITUTION, MMP MAY HAVE TO REDUCE STAFF IN THE NEAR-TERM. EL AROUKI STATED THAT THE NUMBER OF MMP LOANS APPROVED HAS DROPPED FROM 300 TO 70 PER MONTH SINCE THE CURRENT PA GOVERNMENT WAS ESTABLISHED. DURING THE SAME PERIOD, LOAN APPLICATIONS HAVE FALLEN FROM 500 TO 240 PER MONTH. IN ADDITION, 70 PERCENT OF THE MICROENTERPRISE BENEFICIARIES HAVE CLOSED AND 85 PERCENT OF EXISTING LOANS ARE NON-PERFORMING. ¶3. (SBU) EL AROUKI STATED THAT UNRWA HAS TIGHTENED ITS LENDING BY REQUIRING THAT APPLICANTS SECURE A COMMITMENT FROM AN UNRWA EMPLOYEE TO REPAY THE LOAN, IF NECESSARY. AN UNRWA HOUSING LOAN PROGRAM REQUIRES THE SAME GUARANTEE. EL AROUKI NOTED THAT MUCH OF MMP'S CURRENT MICROFINANCE LENDING IS ACTUALLY BEING USED TO COVER LIVING EXPENSES. ¶4. (SBU) PALESTINIAN INSTITUTION FOR LENDING AND DEVELOPMENT (FATEN) GENERAL MANAGER ANWAR JAYYOUSI DECLARED PUBLICLY JANUARY 22 THAT 2006 WAS THE WORST YEAR IN THE HISTORY OF MICROFINANCING IN THE WEST BANK AND GAZA. HE STATED THAT FATEN GRANTED 2,535 LOANS IN 2006 COMPARED TO 5000 LOANS IN ¶2005. THE VALUE OF FATEN LOANS IN 2006 WAS USD 4.4 MILLION, DOWN ALMOST 300 PERCENT FROM THE 2005 TOTAL OF USD 12 MILLION. JAYYOUSI STATED THAT, UNTIL 2006, MOST OF FATEN'S LOANS HAD BEEN FOR USD 15,000 OR LESS AND THE BENEFICIARIES WERE PEOPLE WITH LOW INCOMES OFTEN WORKING FOR THE PUBLIC SECTOR, ESPECIALLY THE SECURITY FORCES. WHEN THE PA STOPPED PAYING SALARIES, LOAN REPAYMENTS RATES PLUMMETED. ¶5. (SBU) JAYYOUSI STATED THAT FATEN IS NO LONGER LENDING TO PA EMPLOYEES AND IS LIMITING LOANS TO LESS THAN USD 5,000. HE SAID THAT THE DETERIORATION OF THE ECONOMIC AND SECURITY SITUATION HAS MADE INSTITUTIONS VERY CAUTIOUS ABOUT GRANTING LOANS. THEIR FOCUS NOW IS ON SELF-PRESERVATION, NOT GROWTH. WALLES