European Palestinian Credit Guarantee Fund / EPCGF - A Success Story

Looking back to planning parameters and start-up of the EPCGF in May 2005 in a difficult economic and political surrounding and now coming to an end, the project by far exceeded the original expectations and showed tremendous results. To remind the readers of the idea of the Credit Guarantee fund: EPCGF’s objectives were to help reduce credit risks of local banks for small and medium enterprises by providing guarantees on a risk sharing basis. EPCGF guarantees provide incentives to local bank to lend to the SME borrowers with insufficient bankable collateral. Early on in the start up, the European Commission and the European Investment Bank expressed interest in the project. Thanks to their unexpected engagement, the initial loan guarantee fund capital of 5 million Euros provided by KfW increased by 13.3 million Euro from the EC being complemented by parallel financing from the EIB of 10 million Euro. The number of partner banks exceeded from originally planned 2 banks to 8 partner banks meanwhile serving small and medium enterprises all over Palestine and in different sectors and creating or retaining approximately 6705 jobs. By the end of September 2010 EPCGF approved 1551 loan guarantees covering a loan portfolio of $ 46,753,403 with an average loan size of $ 30,000. Because of the achievements of EPCGF on one side and increasing demand for microfinance products on the other side, currently EPCGF established the cooperation with a specialized Microfinance Bank (Al Rafah Bank) for further penetration of smaller borrower especially in the agro-industry and agriculture sector. As EPCGF currently does not have a legal status, the last step to complete the success story has been initiated. EPCGF`s incorporation is expected to be established within the next 6 months. The involved parties agreed on incorporation of EPCGF as a Foundation located in Luxembourg. Some of the key factors of success: high flexibility and confidence of co-financiers and Palestinian beneficiary allowed changes during implementation according to the needs professional excellence of the international project director with high social and cultural competencies professional excellence and stability of local EPCGF manager and staff selection and establishment of partnership agreements with local banks excellent relationships with local banks, management and working procedures and maintenance of an effective and trustful cooperation comprehensive training of EPCGF staff and accompanying training of bank staff Some of the lessons learnt: The flexibility of the client allowed substantial changes during project implementation The involvement and closeness of the client allowed timely decisions No interference or influence from the Palestinian project beneficiary allowed the trusting cooperation with partner banks The professionalism of the international expert combined with good understanding of the culture and language skills allowed easier access and establishment of cooperation with local banks Convincing local banks to cooperate took more time and requested more efforts than expected The establishment of transparent and efficient communication, information and controls have been the important condition for effective and timely management between EPCGF and partner banks. The selection of the right manager and staff, their guidance, adequate payment and special training assured staff motivation and stability The recognition of need for additional training for (partner) banks and consequently implemented “Bank Training Project” supported professional skills development in the banks and increased readiness of cooperation