Bid to revive Palestinian economy

PNN/Ramallah

In cooperation with the Palestinian Ministry of National Economy (PMNE), the International Finance Corporation (IFC), part of World Bank Group, finished on Monday the final draft of the Secured Transaction Draft Law (STL), which is aimed at the promotion of development in the Palestinian economy.

In a bid to encourage growth in the Palestinian economy and opportunities for investment, Palestine became the first Arab country to finish its final draft of the STL, which is reportedly now waiting to be enacted by the president. One IFC expert called the law “a revolution in the financial field”, reported JURIST.

Palestinian economy took a huge turn for the worse in the aftermath of the 2014 Israeli assault on Gaza, as shown by the PMA Business Cycle Indicator, 27 May.

One of the biggest obstacles to economic development and growth in Palestine is limited access to credit. Outdated secured transaction schemes pose challenges for lenders and borrowers in their attempts to establish modern businesses and expand access to loans for smaller businesses. Small businesses tend to fall back onto easy donor money in order to expand, rather making adaptations necessary to access larger sums, says TWP.

Attempts are complicated even further by old-fashioned regulations and a lack of legal protection for those wishing to borrow or lend.

According to JURIST, STL policies rely on 2 points: an access to finances and the availability of sufficient collateral. One of the top limitations on Palestinian private sector growth is the restricted access to finances. Creating a solid legal framework of secured transactions would enable this access and improve the stability of the financial system.

Palestinian credit applications are regularly refused on the basis of insufficient collateral, leading to a reluctance on the part of business owners to apply for loans. This insufficiency is largely due to the inability to convert valuable assets into collateral. The STL would legalize this conversion by giving legal protection to lenders should the borrower default.

Although stakeholders have raised questions about the practicality of this law concerning how it might work within the Palestinian legal system, where enforcement is a problem and where overstretched courts and under-trained judges do not effectively enforce existing legal provisions, the IFC has said that it will offer specialized courses on the implementation of the law.