UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 14 / July 2005

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Update

on the International Year of Microcredit 2005

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Made by Microentrepreneurs

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By Fawz Abu Hijleh, Operations Manager, Faten

FATEN, a microfinance institution operating in Gaza and the West Bank, achieved operational self-sufficiency in May 2005 after beginning its financial service operation in 1995. Amidst an uncertain and tumultuous economic and political landscape, FATEN continues to offer basic services, while implementing strategies to diversify its products and restructure and reduce costs to cope with the complex situation. FATEN's recent milestone in operational self-sufficiency may be seen in this spectrum. In an attempt to cope with the harsh economic reality of the second Intifada, which began in 2000, FATEN added new products including a family loan, a consumption loan, and a home improvement loan. In addition to this diversification, FATEN's accomplishment is also due to the strict loan disbursement and collection policies and to the devoted staff.

The Palestinian Context

The Palestinian economy suffers from massive unemployment. Approximately 32.6% of the labor force is unemployed,[1] and approximately 63.8% of Palestinians live below the poverty line (USD $2/person/day), 53.5% in the West Bank and 82.7% in Gaza.[2] Additionally, 16% of the population lives below the minimum level of subsistence.[3] Restrictions on movement prevent the flow of goods between cities and also prevent laborers from moving between cities in the West Bank, Gaza, and Israel. Since the second Intifada began, Palestinian microentrepreneurs are moving away from Israel's market to the local one. FATEN has responded to this new demand with new products.

New Products

In 2004, FATEN started offering a family business loan. The loan size varies between US$1,000 and US$1,5000, has a competitive interest rate and requires salary transfers to guarantee the loan. This product targets existing businesses that are managed by families. In general, these businesses are bigger than businesses targeted by other FATEN products. FATEN also introduced a consumption loan to provide clients with loans for personal needs. These loans vary from US$100 to US$1,000 for the duration of up to one year.

While FATEN's main product is still the group guaranteed lending and saving loan that targets microbusinesses, FATEN's introduction of new products between 2004 and 2005 raised its total products offered to nine. FATEN's home improvement loan was introduced in the Spring of 2005 to help disadvantaged families improve their place of living in a feasible way by offering simple procedures, competitive services and attainable guarantors and collateral. FATEN believes that improvements in housing reflect positively in the lives of the children and the family as a whole. Further, FATEN hopes that the variety of products will strengthen client loyalty.

On the whole, FATEN has remained very flexible in adapting to the unstable political and economic situation and developed creative responses to challenges encountered during the Intifada years. From the beginning of the second Intifada, FATEN never stopped loan disbursement and was always available to provide credit for microentrepreneurs as demand rose due to restrictions for working in Israel. During 2004 and 2005, FATEN continued to widen its operations and enhance its outreach, sustainability and the quality of services to its clients. As of May 2005, FATEN had dispersed 941,521 loans to 3,681 clients and had an outstanding portfolio of US$3,996,834. FATEN currently has ten branches and nearly 60 employees. With new products and innovations FATEN continues its work and expects to overcome the current difficult economic and political period by offering a full range of products for Palestinian microentrepreneurs.