Bankrupt: Financial Life in Palestine in the Late Mandate Era

Is it possible to build a strong national economy and stable financial institutions in the absence of political sovereignty? This question does not concern Mandate-era Palestine alone; it also extends to the contemporary Palestinian reality!

Dr. Srimati Mitra of the History Department at Brown University wrote this article in the International Journal of Middle East Studies at the University of Cambridge in 2020, titled: "Bankrupt: (Financial Life in Palestine in the Late Mandate Period)." This period extends from 1930 to 1948.

Below is a summary of the main points addressed by Dr. Srimati Mitra (noting that the researcher is the same person who submitted a doctoral dissertation at Harvard University in 2014 titled: "A Monetary History of Palestine from 1900 to the Present," which was an important reference in documenting Palestinians' financial rights for the same period).

This research addresses the financial and economic history of Arab Palestinians during the later period of the British Mandate (1930-1948), by studying the experience of the first two independent Arab banks in Palestine: the Arab Bank and the Arab Land Bank, both founded by the Palestinian businessman Abdul-Hamid Shoman. The researcher uses the story of these two banks to understand the complex relationship between debt, land, politics, and economy in Palestine during the 1930s and 1940s..

The study departs from a critique of traditional explanations that attempted to account for Palestinians' loss of land by focusing on the greed of some large landowners or their weak national sentiment. The researcher argues that the reality was more complex: Palestinians found themselves trapped within a colonial system lacking national sovereignty and subject to unfair economic and political balances, which forced them to make difficult and painful choices..

The late Abdul-Hamid Shoman was a model of the self-made businessman. He emigrated from Palestine to the United States in the early twentieth century and succeeded in building commercial wealth before returning to his homeland in 1929, convinced that confronting the Zionist project required not only political work but also building strong Arab economic and financial institutions. From this standpoint he founded the Arab Bank in 1930 and then the Arab Land Bank in 1933, aiming to provide financing for Arab peasants and protect them from falling prey to usurers or losing their land.

The founding of these two banks occurred amid contradictory economic conditions. On one hand, Palestine during the 1920s witnessed noticeable growth in Arab commercial and investment activity, and new companies and economic institutions emerged. On the other hand, the majority of peasants continued to suffer from poverty, debt, high taxes, and declining agricultural crop prices, while the Jewish economy benefited from inflows of capital and external support..

The Arab banks faced many obstacles from their inception imposed by the British Mandate authorities. New banking laws raised licensing requirements and tightened supervision of local banks, while foreign and Zionist banks received more lenient treatment. The British government also supported Barclays Bank and the officially backed Land and Agricultural Bank, while the Arab banks were left to face their fate alone when crises occurred..

During the financial crisis of 1935, which resulted from economic panic associated with the Italo-Ethiopian War, Jewish banks received emergency support and loans, while Arab banks did not receive any comparable assistance. This reinforced Shoman's conviction that the colonial system did not work in favor of the Palestinian Arab economy..

At the same time Palestinian agriculture was undergoing a deep crisis. The global depression, strikes, falling grain prices, poor harvests, and high taxes flooded peasants with debt. Nevertheless, citrus cultivation still appeared to be a promising sector, prompting many farmers and landowners to invest in it by borrowing from the Arab banks..

Among these was Shaykh Suleiman al-Taji al-Faruqi, a prominent Palestinian nationalist politician and thinker and a major landowner. Al-Faruqi expanded citrus cultivation relying on loans obtained from the Arab Bank and the Arab Land Bank. But the collapse of global citrus markets, declining European demand, intense competition, adverse weather conditions, and the repercussions of the 1936 Palestinian Revolt led to the deterioration of his financial situation and his inability to repay his debts..

Meanwhile the Arab banks themselves were suffering an existential crisis. Nonperforming loans rose dangerously, and Arab economic activity declined due to the revolt and British repression, while any government programs to rescue local financial institutions were absent. Faced with the danger of bankruptcy, Abdul-Hamid Shoman decided to adopt a strict debt-collection policy, even if it required litigating debtors in the courts!

This decision sparked internal disagreements even among his closest allies. Ahmad Hilmi Abd al-Baqi, chairman of the Arab Land Bank's board, opposed the strict debt-collection policy, considering that national circumstances required granting debtors more time. But Shoman saw that the survival of national banks represented a higher national interest no less important than protecting individual distressed debtors..

The Arab banks began filing lawsuits against dozens of debtors, including prominent figures from various political currents and major families. The aim was not to target only the poor, but to protect the banking institutions from complete collapse..

On the subject of the danger of bankruptcy, it came close to the Arab banks. The article revealed that there is a 1936 report of the Arab Bank showing that the Arab Bank was burdened with debts, where the ratio of loans to deposits in 1935 was 129%...and 84% in 1936. General comparisons showed that foreign banks dominated the financial system in Palestine, while local banks were much weaker. By the end of 1936: the six foreign banks owned 78% of total deposits valued at 11,015,803 Palestine pound, and 59% of debts. valued at 5,608,250 Palestine pound, while local banks owned only 22% of cash deposits valued at 3,116,686 Palestine pound, compared to 40% of debts valued at 3,878,118 Palestine pound As for the Arab Bank itself, it controlled less than 2% of cash deposits valued at 328,497 Palestine pound, yet it carried no less than 3% of total debts valued at 276,562 Palestine pound...and with the default on repayment of a large part of these debts, as happened at the end of 1936, it became easy to understand why the bank suffered, and why it later described this period as a great crisis!

Here the study reveals one of its most important findings: the conflict in Palestine was not between patriots and collaborators, nor between competing political factions, but between two different national visions. Shoman believed that the survival of Arab economic institutions was an essential condition for national resilience. Debtors like al-Faruqi believed that preserving the land was more important than the survival of the banks, because if the land was lost it would not return!

Al-Faruqi's case became a model of this dilemma. When the banks filed suits against him he did not deny his debts, but he tried by all legal means to postpone enforcement of the judgments because he feared that selling his land would lead to its transfer to Zionist buyers, who were the most able to purchase at that stage. For this reason he enlisted skilled lawyers and continued to file appeals and requests to delay enforcement..

Although some researchers considered his hiring of a Jewish lawyer as evidence of collaboration with Zionism, the documents on which the researcher relied indicate that his primary aim was to buy time and prevent the sale of his land, not to achieve shared political interests with the Zionist movement..

In the end the banks, the creditors, and the debtors all lost. Courts ruled in favor of the banks, and al-Faruqi was declared bankrupt after years of legal disputes. At the same time the banking institutions did not escape the effects of the crisis, as the Arab Land Bank was liquidated in 1942 as a result of losses and strict regulatory constraints..

As for the Arab Bank, it managed to survive thanks to larger reserves and restructuring of its activities. It gradually moved away from financing agriculture and long-term investments and shifted toward financing short-term trade, benefiting from the economic shifts accompanying World War II. By the mid-1940s it witnessed significant growth in deposits and regional expansion into a number of Arab countries..

However, this success did not come without a cost. Strict debt collection policies contributed, unintentionally, to some Palestinians losing their lands. The purchase of land by Zionist institutions also continued at a high pace during those years, which helped reinforce the geographic and economic structure of the Zionist project.

The study confirms that these outcomes were not the result of betrayal or collusion so much as the product of an unequal colonial structure. Arab institutions operated without government protection, while Zionist institutions enjoyed broad financial and political support. The absence of national sovereignty deprived Palestinians of the tools necessary to address economic crises or to protect their institutions and lands.

The researcher concludes that the Palestinian tragedy in the late Mandate period was not merely a conflict between creditor and debtor, or between landowners and Zionist buyers, but a struggle between competing national priorities within a society living under colonialism. Between defending the land and building national economic institutions, Palestinians found themselves forced to make almost impossible choices, many of which ended in collective losses.

The importance of this study lies in that it offers a more complex understanding of Palestinian history, away from simplified explanations that reduce events to concepts of cooperation or factional division. It also raises a question that remains present today: can a strong national economy and stable financial institutions be built in the absence of political sovereignty? This is a question not only for Mandate-era Palestine but also for the contemporary Palestinian reality!