Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instruction No. (22) of 2020

Regarding the Small and Medium Enterprises Financing Program

Pursuant to the provisions of Legislative Decree No. (9) of 2010 concerning Banks, particularly Articles 40 and 72 thereof, and with the aim of mitigating the economic impacts of the coronavirus (COVID-19) pandemic on economic activities and projects, especially small and medium enterprises, and in accordance with the powers delegated to us, and in pursuit of the public interest, we have issued the following instructions:

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Article (1)

Scope of Application

The provisions of these instructions shall apply to all banks licensed by the Palestine Monetary Authority to conduct banking business in Palestine, including Islamic banks.

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Article (2)

Objective of the Small and Medium Enterprises Financing Program

The Small and Medium Enterprises Financing Program aims to achieve the following:

1. Enable projects affected by the coronavirus crisis, including micro, small, and medium enterprises, to obtain the necessary financing to cover urgent operational expenses, support working capital, and continue paying employee salaries and wages, thereby enabling them to maintain production and provide services.
2. Assist in revitalizing and sustaining the operations of the small and medium enterprises sector.
3. Assist in containing the anticipated financial crisis and enabling the economy to overcome it.
4. Assist in restoring economic activity and achieving targeted growth rates.

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Article (3)

Timeframe of the Small and Medium Enterprises Financing Program

1. The program's timeframe shall be (3) three years commencing from the effective date of these instructions.
2. The required financing for the targeted categories shall be implemented and repaid within a maximum period of (3) three years.
3. Subject to paragraph (2) of this Article, the bank may grant certain projects a grace period of up to 12 months.
4. The bank may repay the financing before the original due date, provided that the Palestine Monetary Authority is notified of the reasons and justifications for early repayment.

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Article (4)

Implementation Mechanism of the Small and Medium Enterprises Financing Program

The program shall be implemented according to the following procedures and conditions:

1. The bank shall receive financing applications from the categories specified in Articles (6) and (10) of these instructions from the date of issuance until 30/09/2020.
2. The bank shall conduct credit assessments for the targeted categories and projects.
3. The bank shall submit to the Palestine Monetary Authority a request for financing for projects that meet the conditions stipulated in these instructions.
4. The Palestine Monetary Authority shall review the financing applications for compliance with the program's specified conditions and notify the bank of its decision.
5. The bank shall submit a disbursement request for financing for projects approved by the Palestine Monetary Authority, and the Palestine Monetary Authority shall transfer the financing amount for compliant projects to the bank's account with it within a maximum of two weeks from the date of the request.
6. The bank shall remit financing installments to the account of the Palestine Monetary Authority at the end of each month, taking into account the grace period granted to the projects.

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Article (5)

Eligibility Conditions for the Small and Medium Enterprises Financing Program

A bank wishing to benefit from the Small and Medium Enterprises Financing Program must ensure that the following conditions are met by the projects to be financed:

1. The project must have been operational prior to the crisis.
2. The project must provide employment opportunities and aim to preserve them.
3. Existing projects may be financed to complete the establishment of production lines, complete the expansion of existing projects, or finance the procurement of raw materials to complete production operations.
4. The project must be a formal organized business or officially registered with the competent authorities.
5. The project's business results and financial flows in the last year must be creditworthy.
6. The financing objective must be to fund working capital and/or cover the project's operational expenses.
7. The project must not have been in default prior to the crisis.
8. The financing amount requested must be proportional to the project's actual expenses.
9. The granted financing must be in the form of a loan or Islamic financing.

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Article (6)

Targeted and Non-Targeted Projects

1. The Small and Medium Enterprises Financing Program targets businesses that were directly affected by the coronavirus (COVID-19) crisis and operate in the following sectors:
   a. Professionals and crafts. b. Utilities and health services.
   c. Retail sales (non-food).
   d. Industrial projects. e. Agricultural projects. f. Construction projects. g. Service sector. h. Tourism sector.
   i. Information technology projects.
   j. Non-governmental education and e-learning. k. Micro, small, and medium enterprises, including women-led projects.
   l. Specialized lending institutions.

2. The financing program does not target the following categories:
   a. Personal financing for individuals. b. Government and semi-government institutions.
   c. Projects under establishment.
   d. Financing for share purchases. e. Facilities outside Palestine. f. Non-performing facilities.

3. The Palestine Monetary Authority shall review financing applications at banks related to projects affected by the coronavirus crisis independently.

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Article (7)

Credit Analysis

1. The bank shall conduct studies and credit analysis for the targeted projects in accordance with its credit policies and ensure that the applications align with the conditions stipulated in these instructions.

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Article (8)

Financing Grant Caps

The maximum credit grant cap for targeted projects shall be as indicated in the table below:

Entities	Project Category Criterion	Conditions	Financing Cap (USD)
Micro enterprises	Number of workers: 1-4	Financing of operational expenses<br>Repayment period not exceeding 36 months	10,000
Small enterprises	Number of workers: 5-9	Financing of operational expenses<br>Repayment period not exceeding 36 months	50,000
Medium enterprises	Number of workers: 10-25	Financing of operational expenses<br>Working capital financing<br>Repayment period not exceeding 36 months	150,000
Other enterprises	Number of workers: more than 25 workers	Financing of operational expenses<br>Working capital financing<br>Financing of ongoing projects<br>Repayment period not exceeding 36 months	250,000

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Article (9)

Interest Rates

1. The Palestine Monetary Authority shall charge an interest rate of 0.5% on financing granted by it.
2. The bank shall be committed to charging a declining interest rate of up to 3% to borrowers in the targeted projects.

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Article (10)

Lending to Specialized Lending Institutions

1. Banks may apply for financing to lend to specialized lending institutions with the aim of on-lending funds to the targeted projects stipulated in these instructions.
2. The bank must include the following in loan agreements with specialized lending institutions:
   a. Commitment to use the financing to fund the targeted projects specified in Article (6) of these instructions. b. Commitment to on-lend the loan at an interest rate not exceeding 9%.
   c. Commitment not to modify or change the interest rates on financing granted under this Small and Medium Enterprises Financing Program throughout the financing period.
   d. Commitment not to charge any commissions on facilities granted under these instructions. e. The lending institution may apply its pricing policies to unstructured loans and charge late payment interest on installments due to the debtor of up to 2%, provided this is included in the loan contract.

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Article (11)

Disclosure and Reports

1. The bank shall provide the Palestine Monetary Authority on a monthly basis, according to the form prepared by the Authority, the value of granted/outstanding/repaid loans, portfolio risk rating, and any other data requested by the Authority.
2. The bank shall disclose loans under the program on the credit inquiry system.

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Article (12)

General Provisions

1. A borrower shall not benefit more than once from the Palestine Monetary Authority program.
2. The borrower shall forfeit the right to benefit from the Small and Medium Enterprises Financing Program if it is found that the facilities were misused contrary to their intended purpose, and the bank may apply its pricing policies to this loan, provided this is included in the loan contract.
3. Islamic banks shall comply with Islamic Sharia provisions in the procedures for implementing financing under this program.
4. Loans granted under this program shall be assigned a preferential risk weight of 20%.

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Article (13)

Implementation and Effectiveness

1. All competent authorities shall, each within their respective jurisdiction, implement the provisions of these instructions, and anything conflicting with them shall be repealed, effective from the date of issuance.
2. Issued in Ramallah on this day, corresponding to 01/09/2020.

Azzam Al-Shawa
Governor

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Form No. (1) for Commercial Banks:

Application for Financing from the Palestine Monetary Authority Program to Support Small and Medium Enterprises to Address the Coronavirus Crisis

Applicant Bank Number:
Applicant Bank Name:
Beneficiary Name:
Financing Amount (USD):
Financing Repayment Period (including grace period, if any):
Financing Grace Period:
Type of Collateral (provided for financing):
Collateral Value:
Return on Financing:
Purpose of Financing:
Sector to be Financed:
Number of Employees in the Enterprise: