The European Union's Facility for Euro-Mediterranean Investment Partnership (FEMIP) is contributing to the establishment of a EUR 28.5 million fund for private sector small and medium sized enterprises in the West Bank and Gaza. FEMIP, managed by the European Investment Bank, is to provide EUR 10 million for the European-Palestinian Credit Guarantee Fund (EPCGF) being established with the KfW Development Bank of Germany (EUR 5,5 million) and the European Commission (EUR 13 million).

Agreements were signed yesterday in London with the Palestinian National Authority represented by Mr Jihad Al Wazir, Deputy Finance Minister, and by EIB Vice President Mr Philippe de Fontaine Vive, responsible for FEMIP, and Ms Ingrid Matthäus-Maier, Member of the Board of Directors of the KfW Banking Group, and Mr John Kjaer, Head of the EC Delegation in Jerusalem.

Vice-President Philippe de Fontaine Vive said: This European Palestinian Credit Guarantee Fund will provide a crucial help towards the stabilisation and helping recovery of the Palestinian economy. In line with FEMIP's objectives, it will create more favourable conditions for private sector growth and underpin the development of the local financial sector. The Fund will in particular address the lack of sufficient collateral of many small and medium sized businesses in Palestine to access medium-term finance.

Donors of the fund are providing the finance in the form of grants. FEMIP's support is in the form of a soft loan from EU budgetary resources. The Fund will target private sector development helping to safeguard and create employment opportunities. Small and medium sized enterprises (SMEs) form the backbone of the Palestinian economy, and are a key to the recovery of the economy. Difficult access to bank finance is a major impediment for private sector growth and SME development in theWest Bank and Gaza.

An independent local management team, with experience in SME lending will be responsible for the operation of the Fund, assisted by an international expert. The management team and expert will be hired under the FEMIP and KfW technical assistance programmes. The Fund will support privately owned Palestinian SME's, with less that 20 employees, that have difficulty in obtaining bank loans in industry and manufacturing, agro-food, services and trade. SMEs represent over 90% of all formal private sector enterprises in Palestine, largely family owned business, which employ an estimated 168 000 workers.