About Microfinance

- Why Microfinance
- Global Demand for Microcredit
- Palestinian Demand
- Israeli Demand
- Additional Research and Reports on Microfinance

Why Microfinance
Shurush focuses on microfinance because we believe it to be the most scaleable and cost-effective tool to generate employment. The United Nations concurs with our assessment: In General Assembly Resolution 52/194, the UN recognized "microfinance's important contribution to the eradication of poverty … and social upliftment [and] encourages all involved in poverty eradication programmes to consider incorporating microcredit schemes in their strategies."

Although microfinance is a relatively new field (the first microloans were issued by Grameen Bank in 1976), microloans helped 92.3 million borrowers to start or expand their own small businesses in 2004 alone. That same year, 854 microfinance institutions had at least 2,500 clients¹. Grameen Bank, which has 6.39 million borrowers in Bangladesh², along with other microlenders, are credited by the World Bank with 40 percent of the reduction in poverty in that country.³

Global Demand for Microcredit
The supply of microcredit is vastly inadequate to meet the demand, both worldwide and in the Middle East. Despite 92.3 million microfinance clients worldwide, less than 20 percent of the demand for microloans is being met. ⁴

This shortage of capital for small businesses is particularly troubling in the Middle East, where a large number of Palestinian and Israeli small business owners are unable to obtain small business loans.⁵

Palestinian Demand
A 2006 report commissioned by the World Bank's Consultative Group to Assist the Poor (CGAP) suggests that 150,000 Palestinian microenterprises are in need of a loan. However, with only 26,900 borrowers⁶, only 18 percent of the demand is being met⁷.

Another major report suggests that, although 44 percent of Palestinian businesses need a small or microloan, the penetration of credit is low, with only 2 percent of West Bank businesses and 5 percent of Gaza Strip businesses receiving loans. This major gap between supply and demand represents a tremendous potential opportunity.

Israeli Demand
A 2005 report prepared by the Milken Institute, an independent economic think tank, on small business and microenterprise in Israel states:

"Few of Israel's private and public financing initiatives target microenterprise.

"Assistance packages tend to be relatively large and inappropriate for smaller firms. Furthermore, the application processes for many of these funds have a propensity to be bureaucratic and lengthy. They are characterized by extended approval processes, high application fees, high collateral and guarantee requirements, high rejection rates, high interest rates and age restrictions.

"Despite the fact that small businesses represent over 97 percent of all firms in Israel, and comprise the only sector to have created new jobs in the last decade, these firms receive less than 5 percent of total bank credit.⁸

This data is supported by a survey of Israeli small businesses by the Koret Foundation, which found that 35 percent of Jewish Israeli small businesses and 72.5 percent of Arab Israeli small businesses consider a lack of capital and credit a major obstacle to their business⁹. With 5.5 million Jews and 1.3 million Arabs living within Israel¹⁰, we can approximate that 104,743 Jewish Israeli and 51,283 Arab Israeli small businesses are in need of a loan.¹¹

Click here for more additional information on microfinance