The Palestinian private sector operates in a complex environment marked by political instability, constrained market conditions, and limited financing opportunities. SMEs, which account for over 90% of private businesses and 80% of wage employment, face difficulties accessing credit due to incomplete financial records, limited collateral, and challenges related to formalisation and business planning – many firms operate informally, with limited bookkeeping, unclear legal status, and underdeveloped business strategies.

Since the 7 October 2023 attacks and the ensuing hostilities, the situation has further deteriorated, not only in Gaza but also in the WB: disrupted supply chains and declining consumer demand have placed additional stress on SMEs in the West Bank, including in East Jerusalem. While the banking sector functions under a robust regulatory framework led by the Palestinian Monetary Authority, Palestinian banks are overexposed to the public sector as well as Israeli-imposed restrictions on currency exchange and interbank transactions. As a result, they have reduced their SME lending, especially in vulnerable areas such as Jenin and Tulkarem.

This is concerning, not only because SMEs are central to economic resilience and inclusion, but also because many private sector initiatives in the oPt remain heavily reliant on donor grants. Limited access to credit continues to be a key constraint to developing a sustainable and self-reliant private sector.

In response, some development actors have introduced loan guarantee schemes that partially cover banks’ losses in the event of loan default. These are often paired with technical assistance to strengthen the capacity of financial institutions. While a few such initiatives exist in the oPt, there is clear scope to scale up guarantee amounts to incentivise lending, and to also expand TA offerings to SMEs (not just to banks) to improve their credit readiness and repayment capacity.

Direct:

• At least 750 SMEs in the West Bank, including East Jerusalem, applying for or receiving loans under the loan guarantees linked to the project.
• At least 120 staff members of financial institutions: loan officers, credit risk analysts, and branch managers.

Indirect:

• At least 3,000 employees of supported SMEs: Those whose employment is sustained or created through improved SME performance and financing access – and their families.
• At least 10 local business service providers and consultants: Those engaged in delivering TA to SMEs (e.g. accountants, digitalisation experts or legal advisors).

1. SMEs improve financial literacy, operational know-how and practices (including internal systems), enabling them to meet financial requirements, prepare bankable loan applications, and strengthen their creditworthiness.
2. Financial institutions strengthen their capacity and lending practices to better serve SMEs, including those in underserved segments. 
3. SMEs enhance their productive capacity and adapt to market demands.

Expected results:   Output 1.3: SMEs received targeted technical assistance and coaching to enhance their financial management, record-keeping, and compliance systems in line with financial institutions' lending requirements.
Output 1.4: Capacity-building workshops and one-on-one advisory sessions are delivered to SMEs, focusing on business planning, financial forecasting, and risk management to improve loan readiness.
Output 1.7: Women- and youth-led SMEs are supported with formalisation services and pre-loan advisory to meet eligibility criteria for credit access.
Output 2.7: Capacity of partner financial institutions strengthened through targeted training for credit officers and loan committees on SMEspecific risk assessment, gender-responsive lending, and financing models for fragile contexts.
Output 2.8: Partner financial institutions adapted their lending approaches toward SME lending.
Output 3.1: Capacity of SMEs strengthened to withstand crisis-related disruptions and improve business continuity, market adaptation, and product development through tailored technical assistance.

Results from previous phases:   N/A