The Palestinian Economy. Theoretical and Practical Challenges

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Di Martino – Sarsour
The overall picture is that although some positive results can be noticed, still
substantial problems persist, the main one being the decline in productivity which is
indirectly reflected in the increase of the cost per individual loan (Table 3).
Table 3: Aggregate measures of performance/efficiency of the main micro
credit institutions
2005 2006 2007 2008Q2 2008Q3
# of loans per Loan Officer 125 134 121 110 120
# of loans per Staff member 73 70 58 60 72
Cost per loan in US dollar 184 338 397 381 394
Average disbursed loan size US$ 1,352 1,486 1,569 2,257 2,090
Yield on portfolio 13.5% 11.5% 11.2% 16.2% 16.7%
Source: The Palestinian Network for Small and Microfinance Institutions (2008).
Indicators of self-sustainability (Table 4) show a positive trend but, overall, they reveal a
similarly disappointing picture.
Table 4: Aggregate measures of sustainability of the main micro credit
institutions
2005 2006 2007 2008Q2 2008Q3
World
Average 2001
ROE (donations excl.) -1.6 -11.2 -4.5 4.4 4.6 15.5
ROA (donations excl.) -1.5 -10.2 -4.1 4.0 4.0 5.1
OSS (Operational self -
sufficiency)
88.2 63.7 81.5 100.9 101.4
Sources: The Palestinian Network for Small and Microfinance Institutions (2008) for Palestine; Tucker and
Miles (2004) for world average 2001.
ROE, for example, despite being positive for the first time in 2008 is still very distant
from what the world average was in 2001. Furthermore it is unclear how much of this
result comes from improvements in the macroeconomic scenario rather than from any
increase in the quality of the managerial process. On top of this, it must be noticed that
results drop once donations are taken into account. In other words Palestinian micro
finance institutions are still far from self-sustainability.