The proposed guarantee facility program (SGF2) in Palestine is carried out by Sida and the Middle East Investment Initiative (MEII). Sida launches a re-guarantee to MEII which in turn will administrate guarantees to a number of financial institutions (FIs) enabling them to lend to borrowers which are micro, small and medium sized enterprises (MSMEs) in Palestine.
The contribution consists of a credit portfolio guarantee for the period 2021-2033. The guarantee covers credit defaults on part of the FI's qualifying loans up to the guarantee ceiling amounting to 29 000 000 USD and in SEK 264 480 000 (at an USD/SEK exchange rate of 9,12. The estimated expected loss under the guarantee, which is the guarantee fee, has been calculated by the Swedish National Debt Office. Part of the fee will be subsidized by Sida with support of the Strategy. A subsidy of the expected loss amount is deemed necessary or else it is likely the cost would be transferred to borrowers, which would adversely affect lending and usage of the guarantee. It is assessed that the subsidy enables the disbursement of loans to the target group in risky areas of Palestine.
To qualify as an Eligible Loan under the guarantee, the Loan must be made by a Financial Institution to:
A) a non sovereign Palestinian MSME located in Gaza, Hebron Governate, Area C of the West Bank or East Jerusalem; or
B) a non sovereign Palestinian MSME located in Area A or B of the West Bank that is:
(i) a Female Owned/Run Business or (ii) where the loan to the MSME in such area is qualified as a renewable energy, energy efficiency and cleaner production (RECP) Loan.
A portfolio guarantee agreement is established between Sida and MEII, under which the guarantee shall focus on, but not be limited to the sector renewable energy, energy efficiency and cleaner production (RECP). Furthermore, to support women owned or managed MSMEs in riskier markets in Palestine. In the guarantee agreement a conventional definition align with International Finance Corporation's (IFC) definition of MSME is used.
Guaranteed loans are expected to enable borrowers to uphold and expand their businesses, to strengthen liquidity shortage and to generate employment opportunities. The envisioned impact and theory of change of the contribution is to direct or indirectly alleviate poverty by supporting the recovery of the Palestinian economy, thereby stimulating economic growth and job creation, strengthening businesses and households resilience against system-chocks, private market development and contribute to an overall access to finance for a Sida diversified target group in the Palestinian sectors.