The PMA Publishes a Study on the Economic Role of Specialized Lending Institutions and Their Impact on Financial Stability in Palestine

The PMA's Research and Monetary Policy Department published a study on the economic role of specialized lending institutions and their impact on financial stability in Palestine. The study presents a thorough analysis of the role of medium, small-sized and micro enterprises in the Palestinian economy, the social and development role of loans, good governance in lending institutions and the road map for developing and activating lending institutions. The study was prepared by Dr Nasr Abdel Karim from Birzeit University, and Mohammad Abed and Abeer Abu Zaitoun from the PMA's Research and Monetary Policy Department.

The study concludes that the role of specialized lending institutions in Palestine is relatively small compared to the role of the official financial sector (banks and other financial sector institutions). However, the influence and size of specialized lending institutions is on the rise and it is anticipated to continue to grow in the next few years. In addition, the study predicts a horizontal and vertical expansion of lending institutions in the coming years in terms of the number of beneficiaries of their financial services, as well as of the types of services provided to them.

According to the study, currently, specialized lending institutions have no impact on the financial stability prevailing in Palestine, and as a result, there are no risks associated with these institutions' investments or financing resources. The only potential source of risk in this context is the weakness of governance practices in some of those institutions.

The study recommends that the PMA continues to urge specialized lending institutions to convert into profit or non-profit institutions in accordance with the Banking Law and licensing regulations issued under it. It calls for licensing those institutions in line with laws, regulations and instructions currently in force, as well as building on PMA's previous efforts in organizing and regulating the activities of this sector. The study also recommends drafting a governance code for specialized lending institutions, and incentivizing them to expand lending to small and medium-sized enterprises. This requires developing and innovating new products with relatively large credit ceilings and implementing specialized training programs for lending institutions' employees at all administrative levels in strategic planning, risk management and liquidity, internal monitoring and financial and social performance standards, and fair credit policy. The training programs will help lending institutions comply with the best international standards and practices and with the regulations and instructions issued by the PMA.