Middle East Investment Initiative: Helping small businesses in the West Bank create jobs
Region: West Bank
Sector: Small business lending
Challenge: Small businesses in the West Bank are a key source of job creation but they often struggle to obtain the credit that they need to expand.
Solution: In 2007, OPIC provided a $110 million guaranty to the Middle East Investment Initiative to support lending to the small and medium enterprises that make up about 90% of the Palestinian economy.
Impact: OPIC’s guaranty has supported more than 750 small business loans in sectors from agriculture to manufacturing to retail, totaling over $132 million. These loans, to small businesses that would not otherwise have been able to obtain financing, have led to the creation of an estimated 10,000 jobs, many that are employing women. And the vast majority are being repaid: The loan facility has a default rate of just 2.3%.
Small business borrowers prove to be good credit risks
Small businesses create jobs. It’s a widely accepted economic truth, but it’s not the whole story. The fact is, small businesses need money to grow, but they often struggle to obtain credit. This is especially true in developing countries.
In the West Bank, the Middle East Investment Initiative has used an OPIC loan guarantee to support lending to the small and medium enterprises. MEII loan recipients are often very small businesses with just a handful of employees. But despite the challenges of operating in an environment marked by political instability and significant red tape, they’ve been able to make good use of the capital provided.
One loan recipient, a water bottling company in Ramallah, has grown from 11 employees to 20 since receiving a loan three years ago, while providing a very much sought after source of safe drinking water in a region where water stored on rooftop tanks frequently becomes contaminated with microbes. Another loan recipient was a small printing and publishing shop, which has been able to purchase more modern printing equipment to meet growing demand. That business has more than doubled its employee base.
In a region that has a staggering unemployment rate of about 25%, the impact of helping small businesses create jobs is far-reaching. But job creation is not the only benefit. The success of this lending facility has helped local banks recognize the opportunities of lending to small businesses. Those banks that are participating in a second $100 million MEII Guaranty Facility to launch in late 2015 have even asked to amend the terms so that they can assume a higher level of risk.
The banks in the region have learned that lending to small businesses is less risky than they thought. Many of the businesses in the region are led by highly entrepreneurial and hardworking people. If given the opportunity through the provision of financing, many are able to succeed.
This project was profiled in 2014