EU technical assistance helped Palestinian microfinance institution Faten unlock $8 million for small firms

>@Shua’a Yassin
© Shua’a Yassin

Shua’a Yassin in his laboratory in Ramallah.

Shua’a Yassin wants nothing more than to offer better, quicker and wider-ranging specialised testing to the patients who come to his laboratory in the West Bank city of Ramallah. A medical laboratory technician specialising in hematology, Yassin left his job at the Palestinian Ministry of Health in 2014 to found Lab Tech.

“We started as a routine lab, conducting simple routine tests — not a specialised lab,” he says. “Then we grew and started specialising in hematology and molecular testing.” His lab now employs nine women and men.

To expand the lab’s services, Yassin needed more sophisticated equipment. He was able to purchase it with the help of loans from Palestine for Credit and Development — Faten, a Ramallah-based microfinance institution, which this year received the second part of a $10 million loan from the European Investment Bank.

Financing Palestinian microenterprises

Faten was established in 1999 as a non-profit helping women microentrepreneurs. “Then we expanded over the years to give microfinance services to the public in general,” says Lubna Aboudi, director of Faten’s investment and treasury department.

Now the largest microfinance institution in the West Bank and Gaza, Faten’s outstanding portfolio is nearly $157 million with 26 400 active beneficiaries, according to Hamza Ghannam, manager of the institution’s credit department. More than 30% of the customers are still women.

“We have 35 branches in Palestine, including eight in Gaza,” Ghannam says. “We also have a virtual branch. Since the coronavirus pandemic, we’ve focused on digitalising our processes and our work.”

Harmonising covenants

In 2019, the European Investment Bank signed a $10 million loan agreement with Faten. The first disbursement of $2 million was made in 2020. Due to a combination of difficult circumstances, including the coronavirus pandemic and tensions between Israel and Palestine*, Faten struggled to fulfil the conditions of the loan. That led to a delay in the disbursement of the remaining $8 million.

Another significant hurdle was that Faten had nearly 50 different financial covenants with 17 different lenders, including the European Investment Bank (EIB). It was hard for the microfinance institution to keep track of its multitude of loan conditions.

To overcome this and to help ensure that the European Investment Bank could disburse the remaining $8 million, the EU bank offered to help Faten through the Technical Assistance Programme for Financial Inclusion in the Southern Neighbourhood. The programme is financed under the Risk Capital Facility for the Southern Neighbourhood, which was created by the European Investment Bank and the European Commission to promote financial inclusion in the region.

“The technical assistance programme covers a range of countries — Morocco, Tunisia, Jordan, Algeria, Egypt, Lebanon, Jordan and Palestine,” says Emma-Jayne Paul, a microfinance technical assistant expert at EIB Global, the European Investment Bank arm that handles projects outside the European Union.

“It was initially intended to be a three-year programme, but thanks to its success, it will be extended for a further two years until the end of January 2025,” she says. The programme is focused on providing advisory services to both microfinance institutions and their clients in the Southern Neighbourhood to strengthen their financial and managerial skills.

Simplifying myriad agreements

Faten was happy to accept the assistance. The microfinance institute had to respect 49 different sets of loan conditions, or covenants, from 17 different lenders. It was complicated, because sometimes the covenants were very similar to each other, with only slight differences. For example, for one lender, the microfinance institution would have to calculate its capital adequacy ratio — a measure of its financial health — using only certain types of assets. For another lender, it could use a wider-range of assets.

Faten reviewed all the covenants and winnowed them down to six. It then entered a long and complex negotiation with each of the lenders to see if they could accept the new covenants.

The project was supposed to last just a couple of months, but it ended up taking close to a year. Each lender had to check the proposals with their risk committee, then went back to Faten, which took the lender’s demands into account before checking with each of the other 16 lenders, who repeated the process.

Crisis-proof conditions

The political situation in the West Bank and Gaza is complicated, and crises are frequent. “We don’t control our borders, like the border between Jordan and Palestine, or the sea borders, or borders with other countries around us, like Lebanon and Syria,” Ghannam says. “This makes it difficult for export and import between us and other countries.”

Faten provides loans to microenterprises and small businesses, which may not have the resources to absorb currency fluctuations while they wait for their exports to be processed. “It takes a lot of time for them to export their products,” Ghannam says.

So when the covenants were being renegotiated, it was also important that lenders understand the instability inherent in Faten’s business.

All of the lenders eventually made compromises, and all 17 ended up adopting the same six covenants. Once the initiative was completed, the EIB was able to release the $8 million. Since the disbursement in July, Faten has added three new lenders, which also agreed to the same six covenants.

The Bank’s technical assistance team hopes it might be possible to replicate the initiative at other microfinance institutions in crisis-hit economies.

Lab Tech looks to the future

>@Shua’a Yassin
© Shua’a Yassin

With the loans Lab Tech received from Faten, Shua’a Yassin was able to buy a variety of specialised lab machines to conduct hormonal and molecular tests. He used the latest $30 000 to buy real-time PCR testing equipment in February.

“Now we are looking for devices that are not found in our community, like next generation sequencing, and more special instruments that work on human DNA,” he says. “We are looking to find funding for that.”

Currently genetic sequencing tests need to be sent out to Israel, Jordan or Europe. “It takes between 20 days to a month to get the results,” Yassin says. “If we had the instruments, it would be quicker.”


* This designation shall not be construed as recognition of a State of Palestine and is without prejudice to the individual positions of the Member States on this issue.