Palestine Monetary Authority

Circular No. (2013/53)

To all banks operating in Palestine

Date: Tuesday, April 16, 2013

Subject: Developing and Enhancing Lending Opportunities for Small and Medium Enterprises

Further to the outcomes of the Fourth Banking Conference 2013, held in Jericho to enhance and develop the capacities of small and medium enterprises (SMEs) and enable them to access financing and credit facilities, and referring to the conference's final recommendations aimed at stimulating and preparing the climate for banking financial institutions to expand granting facilities to SMEs on one hand, and strengthening investment in this sector on the other, the Palestine Monetary Authority has decided to take incentive measures contributing to achieving and implementing the conference's recommendations:

First: Exempting small and medium enterprises from the requirement to pay a cash down payment of 10% of the outstanding debt balance, as stipulated in the Palestine Monetary Authority Instruction No. (2008/01) regarding the classification of credit facilities, provisions, and acceptable guarantees, subject to the following conditions:

1. The institution must meet the agreed-upon conditions and criteria for defining small and medium enterprises with banks at the inaugural meeting held at the Banks Association, whereby institutions employing a maximum of 25 workers and with annual sales not exceeding USD 7 million are considered small and medium enterprises (SMEs).

2. The exemption applies to the institution only once for the loan/financing period, even if the loan/financing is merged with other facilities.

3. The exemption must be based on a realistic, clear, and bank-approved cash flow statement for the institution.

4. The loan/financing must be guaranteed by one of the loan guarantee institutions, subject to the institution meeting the following conditions:

a. The institution must be operating in Palestine.

b. The loan guarantee coverage for the institution must be acceptable to the Palestine Monetary Authority.

c. The loan guarantee ratio must not be less than 60%.

d. In case the conditions stipulated in (a, b, c) do not apply to the institution, prior approval from the Palestine Monetary Authority is required.

Second: Exempting banks from forming a risk reserve of 1.5% as specified in the Palestine Monetary Authority Instruction No. (2008/05), in exchange for facilities granted to small and medium enterprises, subject to the following conditions:

1. The exempted facilities (performing and non-performing) must be granted to institutions meeting the SME definition conditions and criteria outlined in Item First of this Circular.

2. These facilities must be guaranteed by one of the loan guarantee institutions operating in Palestine that meet the conditions outlined in Item First of this Circular.

3. The exempted facilities must be reviewed quarterly and their data updated periodically.

All banks are requested to comply with the above instructions and exemption conditions effective from the date of issuance.

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Public Relations and Market Operations Department

Palestine Monetary Authority

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Ramallah - Al Bireh P.O. Box 452 - Tel.: 02-2409920 - Fax.: 02-2409922 Gaza - P.O. Box 4026 - Tel.: 08-2825713 - Fax.: 08-2844487 E-mail: info@pma.ps www.pma.ps

Ramallah - Al Bireh P.O. Box: 452 - Tel.: 02-2409920 - Fax.: 02-2409922 Gaza P.O. Box: 4026 - Tel.: 08-2825713 - Fax.: 08-2844487