Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (1) of 2022

Concerning the Provision of Financing to Specialized Lending Institutions

Based on the provisions of Legislative Decree No. (34) of 2021 amending Law No. (2) of 1997 concerning the Palestine Monetary Authority, and its amendments, particularly Article (2) thereof, and based on the provisions of Decision No. (132) of 2011 on the Licensing and Supervision System for Specialized Lending Institutions, 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)

Definitions

The words and phrases used in these Instructions shall have the meanings assigned to them below, unless the context indicates otherwise:

• The Institution: A specialized lending institution.
• Targeted Category: The sectors and industries listed in Article (3) of these Instructions.

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Article (2)

Objective and Scope of Application

1. The provisions of these Instructions aim to regulate the provision of financing by the Authority to Institutions to achieve the following objectives:
   a. Enhance the contribution to encouraging and stimulating sustainable economic growth by directing credit to productive economic sectors. b. Provide low-cost financing to economic sectors to enhance production.
   c. Align with the policies and economic vision adopted by the Government.

2. The provisions of these Instructions shall apply to all specialized lending institutions licensed by the Authority.

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Article (3)

Targeted Categories

The objective of the financing granted to the Institution must be to provide financing for existing or new productive projects of micro, small, and medium enterprises operating in the following sectors and industries:

1. Technological projects and digital transformation.
2. Green projects and green loans.
3. Industry and handicrafts.
4. Agriculture and livestock.
5. Entrepreneurs from among women and youth.
6. Tourism.
7. Any other sectors approved by the Authority.

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Article (4)

Financing Application

When applying for financing, the Institution must commit to providing the Authority with a lending program containing the following data:

1. The objective of the financing and the targeted categories, and how it contributes to achieving the objectives of these Instructions.
2. The disbursement period, repayment schedule, grace period, and guarantees the Institution will provide in exchange for the financing.
3. The number of targeted projects and their financing, the average loan or financing amount, and the maximum limit per single loan or financing.
4. Conditions and controls for granting loans or financing to each of the targeted categories.
5. Interest rates or returns, commissions, and fees to be collected from borrowers.
6. Guarantees to be collected from borrowers.
7. The extent to which a loan guarantee program is provided.

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Article (5)

Conditions and Requirements for Granting Financing

The Authority shall consider the following conditions and requirements when granting financing to the Institution:

1. The financing value shall not exceed 20% of the Institution's net equity under any circumstances, provided that the following are met:
   a. The Institution's compliance with the minimum capital and equity requirements according to the prevailing Instructions. b. The Institution's leverage ratio does not exceed (3 to 1).
   c. The non-performing loan ratio in the Institution's existing credit portfolio does not exceed 10%.
   d. Productive loans granted shall not be less than 50% of the existing credit portfolio.

2. The Authority may grant the Institution financing less than (20%) of its net equity if one or more of the conditions stipulated in paragraph (1) of this Article are not met.

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Article (6)

Conditions for Granting Financing to Targeted Categories

1. The Institution must adhere to the following conditions when granting loans and financing to targeted categories:
   a. The borrower must be Palestinian and at least 20 years old. b. The objective must be financing working capital, financing project operating expenses, or establishing new projects.
   c. The borrower must provide proof that the loan or financing is used for the purposes for which it was granted.
   d. The size of the requested loan or financing must correspond to the actual needs of the project. e. The borrower must have cash flows from the project or other sufficient income sources to cover the monthly loan/financing installment. f. The borrower must not be in default on obligations and must not have a low credit rating.

2. The Institution is prohibited from using the granted financing for any of the following:
   a. Settling any existing obligations of the Institution. b. Granting loans or financing for the purpose of purchasing shares.
   c. Settling non-performing loans or financing or rescheduling them.
   d. Granting loans or financing to the Institution's board members, employees, and related parties.

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Article (7)

Financing Repayment Period

The Institution must repay the granted financing within a maximum period of (4) four years. The Institution may repay the financing before the original maturity date, provided that the Authority is notified of the reasons and justifications for early repayment.

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Article (8)

Interest/Return Rates

1. The Authority shall determine the interest/return rate on financing granted by it on a case-by-case basis.
2. The Authority shall determine the maximum interest or return rate on financing granted to the Institution, which shall be collected on loans and financing granted to targeted categories.
3. The Institution must comply with the interest or return rates on loans and financing granted under the provisions of these Instructions.
4. In cases arising from the Authority, the Institution must continue to apply the contractual interest rate on loans not scheduled for repayment, and may charge late fees on overdue installments to the borrower up to a maximum of 2%, provided this is included in the loan contract.

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Article (9)

Loan Guarantee Programs

1. The Institution may, for the purpose of mitigating risk, contract with loan guarantee programs approved by the Authority.
2. Borrowers shall not be charged any additional fees, returns, or interest resulting from the contracting referred to in paragraph (1) of this Article.

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Article (10)

Disclosure and Reports

1. The Institution must provide the Authority with a monthly statement of loans and financing granted under the provisions of these Instructions, according to Annex (1).
2. The Institution must disclose loans and financing granted under the provisions of these Instructions to the F26 Credit Information System, along with the designated code.

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Article (11)

Islamic Financing

Institutions granting Islamic financing must comply with Islamic Shariah provisions in the implementation procedures of the financing.

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Article (12)

Repeal

All provisions conflicting with these Instructions are hereby repealed.

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Article (13)

Implementation and Repeal

All competent authorities shall, each within their respective jurisdiction, implement the provisions of these Instructions and apply them as of the date of issuance. Issued in Ramallah on 2022/04/14.

Dr. Firas Malham
Governor
(Signature)

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Note:
On the following page, Annex No. (1) is provided, which is a template for the "Statement of Loans and Financing Granted Under These Instructions," containing a table with columns such as:

• Name of the Specialized Lending Institution
• Borrower Name
• Sector/Economic Activity (Nature)
• Financing Amount USD
• Interest Rate or Return
• Number of Installments
• Guarantee Type
• Guarantee Value USD
• Outstanding Financing Balance USD
• Due Installments Value USD
• Gender (Male, Female)

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Additional Note:
At the bottom of each page, contact information is provided:

Ramallah & Al-Bireh Governorate - Palestine P.O. Box 452 Ramallah & Al-Bireh Governorate - Palestine P.O. Box info@pma.ps | Fax: +970 2 2415310 | Tel: +970 2 2415251 Gaza - Palestine P.O. Box 4026 Gaza - Palestine P.O. Box Fax: +970 8 2844487 | Tel: +970 8 2825713