Translated by Tamara Barakat

Firas Jaber, a researcher at the Social and Economic Policies Monitor (Marsad), believes that the loans injected into the Palestinian market during the past ten years did not contribute to developing the Palestinian economy. Rather, they increased the debts due onto the citizens, especially since most of the granted loans were consumer loans, and as soon as citizens bought the goods, the loans no longer brought any more profit.

Jaber also thinks that the borrower paying amounts that exceed the original value of the purchased items gives the items a value more than they deserve, which will lead the Palestinian economy into a crisis amounting to a billion dollars each year, if the lending and interest rates remain as they are.

Problem in Lending Priorities

At the beginning of each year, central banks in several countries hold meetings in which they determine the lending priorities for that year. Last year, the meeting concluded to concentrate the loans in India, for example, on education and supporting small business projects. In contrast, Palestine lacks this organization in lending that is needed for the process to be efficient, as banks highly focus on granting consumer loans that guarantee high profits and guarantees for them.

In 2013, banks granted loans for buying cars that reached $130 million, which is a large amount in comparison with the living conditions of Palestinians and their income levels. However, the banking facilitations and the long-term repayment period encouraged the employees to borrow, even though each vehicle loses 20% of its value immediately after purchase, and another 10% each following year.

In 2014, banks granted about 68% consumer loans, while the agriculture sector received 13 million shekels out of the overall 4 billion shekels loaned during that year.

High Interest Rates

Dr. Mufeed Thaher, professor at An-Najah University, says that the increase in interest rates on loans and the decrease in deposits negatively affects the Palestinian citizen and economy. Banks should increase the interest rates on loans, especially investment loans that bring profits to the citizens, and consequently to the banks. He suggested dividing the Palestinian economy into sectors where the interest rate is based on the risk in each sector.

As for the current distribution of loans on the sectors of the Palestinian economy, Dr. Thaher says that banks neglected the agricultural sector because of the high risk involved in it, while they focused on employees who possess high guarantees.

Jaber criticizes the banks’ neglect of the agricultural sector and the high-risk sectors, and that loans are targeted toward those who have high guarantees, such as employees, 90 thousand of which have borrowed loans. Jaber warns about the occurrence of a big economic crisis that can cause the collapse of the Palestinian economy if the Government fails to pay the salaries of the employees for several months, as mortgage will consume houses, cars, and estates.

He demanded that the interest rate placed on consumer loans be 1.5%, and 2.5% on production loans. He also demanded forming a fund for production loans to support and develop them.

Lending in the West Bank and Gaza

 In 2014, Palestinian banks granted loans amounting to 4 billion dollars, half a million of which were granted in Gaza, and 3.5 billion in the West Bank. 2 billion shekels were granted in Ramallah alone. According to Jaber, these numbers show that banks discriminate between the West Bank and Gaza, granting less loans to Gaza because of the high risks they would carry.

Jaber adds, “Banks lend us through our own deposits. They do not contribute with anything themselves. They lend from the money of the people and receive an interest on the loans. Also, the interest rate on deposits is less than 1%, while it reaches around 5% on loans, paid in dollars.”

The Role of the Monetary Authority

According to Jaber, the Palestine Monetary Authority plays a technical role only. It forms economic policies, supervises over banks, and amends the measures applied in the banking sector.

He says, “The Monetary Authority always uses the absence of a state as its excuse, but it has the ability to form policies. It is impossible to have 2.2 banks in Palestine for each million citizens, while China, one of the world’s strongest countries, has one bank for each half million citizens.

Noting that only two banks in the Palestinian market control 55% of the deposits, and so, shouldn’t the Monetary Authority intervene to regulate this sector?”

(Nour Al-Din Marzouq, Al-Safeer Al-Iqtisadi Newspaper)