VZCZCXYZ0000
OO RUEHWEB

DE RUEHJMA #0159 0261323
ZNR UUUUU ZZH ZUI RUEWMCF1987 0261333
O 261323Z JAN 07
FM AMCONSUL JERUSALEM
TO RUEHC/SECSTATE WASHDC0000
INFO ARAB ISRAELI COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHBS/USEU BRUSSELS

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