February 24, 2023
Bottled drinks produced by the SME loan recipient by the Bank of Palestine
Staffs of the Bank of Palestine and CEO of the recipient company
The Japan International Cooperation Agency (JICA) signed a US$30 million loan agreement with the Bank of Palestine, a major private financial institution in Palestine, on December 12, 2022, and held a ceremony on February 16, 2023 to commemorate the signing. The loan will finance micro, small, and medium enterprises (MSMEs) and will contribute to the development of Palestine’s private sector.
In Palestine, MSMEs account for 97% of all enterprises and 87% of all people employed, therefore playing an important role in its economy. On the other hand, lack of access to finance is a challenge to private-sector development, especially for small and micro businesses. In addition, due to the fragile economic system, the Palestinian Authority imposes strict capital controls on the banking sector, which constrains the expansion of bank lending.
This loan is the first form of private sector investment finance for Palestine, and also JICA's first form of assistance using an unique equity-like instrument called a perpetual subordinated loan with conversion (Additional Tier 1 Investment) (see note 1). The loan will contribute to improving access to finance for MSMEs by increasing the Bank of Palestine's equity capital and thereby expanding its loan portfolio. It is also expected to further support the development of MSMEs in Palestine, which JICA has been supporting an institutional-establishment and human resource-development.
Additionally, this loan will contribute to the “G7 2X Challenge: Financing for Women” initiative announced at the G7 Charlevoix Summit (Canada) in June 2018 (see note 2) and also SDGs (Sustainable Development Goals) Goals 8 (Decent work and economic growth), 9 (Industry, innovation and infrastructure), and 17 (Partnerships for the goals). JICA will support the financial inclusion of those with limited access to finance, such as MSMEs, in Palestine and other regions around the world.
(Note 1) Perpetual subordinated loans with conversion (Additional Tier 1 Investment) are loans having the same effect of equity investment for a borrower. They are subordinated loans and can be converted into equity shares when the trigger event occurs.
(Note 2) 2X Challenge: Financing for Women is an initiative adopted by the G7 development finance institutions (including JICA) on the occasion of the G7 Leaders' Summit in June 2018, aimed at mobilizing 3 billion USD by 2020 for projects that contributed to women's economic empowerment. In 2021, the goal of mobilizing 15 billion USD over the two years from 2021 to 2022 was set to further expand this initiative. "2X" refers to the goal of doubling not only the amount of investment in women, but also the effectiveness of said investment