The Idea of Development From Below in Palestine

- We in Palestine need a bank project, with a special law and tax exemptions, owned mostly by the small borrowers, to provide credit to them without financial collateral, but with guarantees of social commitment...! Along the lines of the Grameen Bank experience (Village Bank), and the idea of development from below...!

- All banks do not lend to the poor...! Despite that "access to credit is a right among the established human rights," and the truth has been established that "there can be no lasting peace unless people find a way to break the circle of poverty...and microcredit is one of the most effective of those ways, and development from below serves to achieve progress on the path of democracy and human rights"..! These statements were made by the Nobel Peace Prize Committee in Norway in 2006, in the record of the ceremony awarding the Nobel Peace Prize to Professor Muhammad Yunus, founder of Grameen Bank (Village Bank) in 1983...!

- Have you ever seen a poor person knock on the doors of banks and obtain facilities and loans without any collateral...and at a reduced interest rate...and without owning property or money or assets or salaries, and without signing legal instruments to secure repayment...? Of course the answer will be no...! But banks of all types and classifications do not respond to any caller at their doors unless he is wealthy and an owner of money and property and has the financial ability to repay. And this is in fact true, because it aligns with the nature of banks as for-profit joint-stock companies, not a public sector; they have the right to chart their own path to profit and to pursue their own interest, which comes at the top of their priorities...within the frameworks and supervision of the public sector. Yet banks choose a segment of society considered small, the segment of capital owners and those with financial capacity who are referred to in this field as "the rich," and who possess assets that qualify them to obtain credit from banks, to be regarded as the strongest arm in developing the national economy, and on them falls the responsibility of solving the country's economic problems through their hidden hands in the market...compared with the majority of the people that includes the poor class and the middle class that is on its way to dissolving and joining the poor class, according to income standards, and which are not considered significant actors in the country's development. Definitions and bases of poverty may differ between countries, and certainly there will be differences in definition in many countries of the world...and there are levels of poverty lines for each country, according to income and living standards, purchasing power and cost of living in that country...not to mention the unemployed...!

- As in economic theories as well, reliance is placed on upper segments in the market as we mentioned, and on the private sector to achieve development, by enabling these segments to obtain funds and providing them with guarantees, exemptions and the necessary facilities to create a favorable climate for them....These actions certainly lead to a sharp disparity in incomes and wealth: the rich become richer when they impose their prices and financial schedules, which form hidden hands that control the market and work to balance transactions, but in their favor...and the poor become poorer...in addition to the high unemployment rates in many societies around the world. Here in Palestine the number almost approaches half a million people....and the gaps widen between the small wealthy class and the majority poor classes when the middle class, referred to as the lower middle, dissolves — which constitutes the majority of society — and which will not receive credit from banks under the laws of the capitalist market.....!

- It was from here that Professor Muhammad Yunus began proposing solutions to the poverty problems that his country Bangladesh was suffering, in the majority of its population, which exceeds 160 million people...and he founded a bank in 1983 called Grameen, which in Bengali means "Village Bank"....and thus it was the first bank in the world to provide capital to the poor only, in the form of loans without financial collateral; so that they could establish their own income-generating projects, based on organized group guarantees, in the form of groups composed of five individuals, and centers composed of six to eight groups....!

- Professor Yunus was born in 1940 in Bangladesh, which before 1971 — the day of its independence — was called "East Pakistan," having separated from what was known then as West Pakistan and is now Pakistan...Professor Muhammad Yunus was an advocate of independence and the birth of the state of Bangladesh, which is one of the poorest countries in the world, with 160 million people (according to the 2018 census). Dr. Muhammad Yunus’s father was well-off, which enabled Dr. Yunus to study comfortably in prestigious schools and universities until he obtained a Fulbright scholarship to complete a PhD in economics in the state of Tennessee at Vanderbilt University, and he returned in 1972 after completing his doctorate to head the Economics Department at the famous Chittagong University in Bangladesh. Despite his comfortable financial situation, Professor Yunus’s eyes kept witnessing the disasters of famines and poverty around him deepening. A famine occurred in Bangladesh in 1974, claiming about one and a half million lives who died of hunger. He was affected by this and, together with his students in the Economics Department, while they watched with their own eyes the horror of these disasters around them, they went out to the surrounding villages to learn the roots of these catastrophes. Dr. Yunus met in a village (Jobra) next to the university a woman who made chairs from bamboo, which is abundant there, and he asked her about her work and from what source she financed it. She answered that she obtained small loans from the moneylenders in the town to buy raw materials for her craft (bamboo), and she sold her production to repay the loans and their exorbitant interest, leaving her with barely subsistence, (she remained with just enough each day for two meals for her family)...and poverty persisted...indeed deepened...and accumulated..! Then Dr. Yunus and his students realized that the root of the problem was the basic need of such poor people for capital...!!

- Professor Yunus, on his own initiative, lent the mentioned woman a small amount from his own pocket and 42 other people in the village, and all each of them needed was a trivial amount estimated at $30 per person, to start their own work...examples included rice husking and packing in bags, etc....without any interest and without a fixed repayment period.! He and his students visited many villages, and Professor Yunus tried in vain to persuade the country's central bank to adopt the idea of granting such poor people small and even very small loans to start their businesses and improve their living conditions, and he also tried to convince the commercial banks in his country of this idea, but they rejected and ridiculed it..! Those banks grant facilities and loans only to owners of property, land and money and assets..!..But Professor Yunus did not despair. He continued to follow up and study in an attempt to prove his point from 1976–1979, that the poor are worthy of borrowing, and his project succeeded brilliantly, changing the lives of 500 poor families, and in 1979 the central bank became convinced of the idea's success and adopted the Grameen project (the village project)...!

- The effectiveness of the microcredit system was confirmed in 1981 in Bangladesh when Professor Yunus expanded his project to include five other districts of Bangladesh. He then announced the establishment of a bank owned and run by the poor, the majority of whom were women...whom Dr. Yunus viewed as a major labor force in Bangladesh, but an untapped one!..The choice to focus primarily on women in implementing this idea stemmed from the fact that women are more diligent in work...and from banking experience, a woman places her family and children at the top of her priority ladder, while a man has a different priority ladder.!

- The bank of the poor, which was named Grameen Bank (i.e., Village Bank)...and Dr. Muhammad Yunus received the Nobel Peace Prize in 2006, due to creating and generating economic and social development from below...

- Dr. Magdy Said reported in his book "The Experience of the Bank of the Poor" in its 2007 edition some additional information about such an experience, describing it as a creative experiment, an institutional experience based on consultation, a developmental experiment to develop the economy, improve quality of life, social development, and an experiment to improve human quality. The features of the economic system in Grameen Bank (Village Bank or Bank of the Poor) were: granting loans without collateral through groups (each group consisting of five members), and centers (each center comprising about 6–8 groups), and through financial supervision...then branches each overseen by a branch manager responsible for 60 centers, so a branch would consist of 360–480 groups, making the number of borrowing clients per branch 1,800–2,400 clients. Nine employees work in the branch, including 6 field workers, each field officer supervising 10 centers, at a rate of two centers per day (center meetings); then there is a unit called the Sector Office that supervises on average 9 areas, and the Head Office that supervises 11 sectors...and so on...these are details of the system in Grameen Bank (Village Bank or Bank of the Poor)....

- Grameen Bank is regulated by a special law and is subject to government exemptions from commercial profit tax....and this bank is owned by the poor borrowers and operates exclusively for them. The borrowers own 94% of its shares, and the government owns the remaining 6%.

- Borrowers are not required to sign any legal instruments, nor is the group required to provide any guarantees for repayment; the guarantee is the "social capital" represented in networks of mutual support and social control, embodied in what is known as the group and the center—as we noted earlier—and the responsibility for repayment remains solely on the individual borrower. The role of the group and the center is limited to monitoring the borrowing member to ensure that he or she behaves responsibly and does not get into repayment problems. The responsibility to repay overdue loans does not fall on the other members of the group.

- The number of borrowers from the bank in 2006 reached 6.61 million borrowers, 97% of whom were women. Grameen Bank has 2,226 operating branches in 71,371 villages, employing 18,795 staff (statistics cited in the book "The Experience of the Poor's Bank" by its author Dr. Magdy Ali Said, in its second edition in 2007).

- As for the total loans distributed by Grameen Bank since its establishment in 1983 up to 2006, they amounted to $5.7 billion; $5.07 billion was repaid, and the repayment rate reached 98.85%.

- 100% of total loans are financed from the bank's deposits; 63% of those deposits come from the borrowers themselves.

- Interest rates on loans at Grameen Bank are among the lowest in Bangladesh, and initial loan amounts range from $10 up to $300. The bank also gives the highest returns on deposits, which ranged between 8.5%–12% at the time of that statistical publication (2006).

- Scholarships are granted to the most outstanding children of borrowers, with priority given to girls.

- Students who complete the third level of education are also granted loans to continue their university education, covering tuition, board, and other school expenses...

- The bank covers non-performing debts through a loan reserve fund.

- The bank also has a good retirement policy: any employee can retire after 10 years or more and receive an average sum of $9,772; the total pensions paid to retirees amounted to about $59 million after about 6,057 employees retired.

- The bank encourages a policy of opening new branches, but each new branch is supposed to finance itself without relying on the head office, and the financing comes from the borrowers' deposits.

- In the event of a borrower's death, all outstanding loans are repaid from a loan insurance fund that was formed from interest on the savings fund deposited by borrowers in favor of the loan insurance program.

- A pension fund program for borrowers was also established: the borrower is asked to deposit a small monthly amount over 10 years, after which the borrower receives twice the amount he or she deposited... The balance of this fund reached $172 million in 2006.

- In this context, and during my tenure as Executive Director of Link Jordan in Nablus (formerly), several colleagues who were managers of Bank of Jordan in Palestine and I visited Chile in the late decade of the last century. We spent 10 days in which we studied Chile's pioneering experience in such microloans, and we and our hosts' officials from one of Chile's giant banks saw the small workshops in neighborhoods of the capital Santiago... and how the program operated... in a program whose goal was to improve economic conditions and provide startup capital in small amounts so borrowers could build their own businesses in stages....!

- We in Palestine are in urgent need of a bank like Grameen Bank.. It is true that our situation in Palestine is different in many respects: we are under an odious occupation, the government does not have control over most areas in Palestine, which were classified by the occupation according to the Oslo Accords as "C", "B", and "A", and therefore the ability to effect change regarding development of such areas by establishing a village bank, for example, modeled on Grameen Bank, is not fully within the government's power, because security, administrative, and economic control is in the hands of the Israeli military occupation—unless development through this bank is done in the governorate and city centers, and monitoring, supervision, and project management are passed through field work in "C" areas one way or another, because the nature of such concepts: decentralization... where there is independence in decision-making. In addition to these constraints, the issue of the Palestinian division appears, which still exists, and consequently the work remains largely deficient, because work will only be possible in city and governorate centers and in some parts of the West Bank.. and therefore the countryside will remain neglected.. unless all problems are resolved by ending the Palestinian division and removing the military occupation's control over all rural areas...!

- At the same time, banks in Palestine, according to the geography of their banking facilities, and as we stated in a previous publication, in the West Bank, the Palestine Monetary Authority (PMA) statistics for the second quarter of 2020, compared with banks' data in the same quarter of 2019, showed that the concentration of banks operating there in granting credit was focused in Ramallah and Al-Bireh Governorate, as we noted in the first article, at about 60% of the total facilities granted by banks in the West Bank. For example, in Q2 2020 compared with Q2 2019, PMA statistics showed that deposits of Ramallah and Al-Bireh Governorate as of 30-6-2020 became $4,913 million, while its facilities as of 30-6-2020 became $5,194 million, an increase of $742 million over the same quarter of 2019. Ramallah Governorate thus achieved an increase in its facilities of 104%, with the ratio of facilities granted to total deposits in Ramallah Governorate reaching 106%, despite its share of the West Bank population being about 11% and its area as a governorate about 14% of the total area of the West Bank governorates. It is apparent that some governorates—mostly northern governorates, which often represent rural areas—saw their facilities decline. Qalqilya Governorate's facilities decreased by $4 million in Q2 2020 compared with Q2 2019, despite an increase in its deposits in Q2 2020 compared with Q2 2019 by $24 million, noting that the ratio of facilities to the governorate's deposits reached 45%... The governorate's population (2017 statistics) reached 112,000 persons. Jenin Governorate's facilities decreased by $18 million despite an increase in the governorate's deposits by $76 million; the ratio of facilities to total deposits in the governorate was 39%, given that its population reached 314,000 persons. Salfit Governorate's facilities decreased by $40 million while its deposits increased by $16 million; the ratio of facilities to total deposits in the governorate reached 43%, noting that Salfit's population is 75,999 persons. Tubas Governorate's facilities decreased by $10 million while its deposits increased by $9 million; the ratio of facilities to total deposits in the governorate reached 42%, and its population reached 60,000 persons. These northern governorates largely represent the rural sector...! Therefore, it is difficult to force banks to distribute their facilities more equitably across all areas of Palestine, because such companies have their profit programs and give first priority to the segment that has the financial capacity to repay when granted facilities; they do not consider the concept of equity in this regard, as they are joint-stock companies. Consequently, it is difficult for banks to establish a presence there due to the lack of projects and their unprofitability, such as agricultural projects, and it is not easy to follow up with borrowers... Therefore, there is no safe alternative except a village bank under a special law.

- The sectors covered by bank facilities (second quarter statistics of 2020) are consumer loans (amount $1.501 billion), car loans ($374 million), consumer services loans ($1.227 billion)... and other services ($1.130 billion), and other sectors, and despite the increase in GDP at that time as one of the criteria and indicators of economic growth in the country, such consumer and service sectors do not solve the serious unemployment problems. The number of unemployed is increasing; about 40,000 graduates leave universities annually..... and the number of unemployed approaches half a million people in Palestine.. compared with few job opportunities..!!..and no increase in the employment rate, ....and therefore, the living standards of many families did not improve..! Rather, individual consumer spending increased... and the gaps between the rich and the poor increased..

- The concentration of banking facilities in Ramallah and Al-Bireh Governorate encourages internal migration from other governorates, and the interest-profit margins at banks and specialized lending institutions are considered high (the difference between lending and deposit interest rates), in addition to the fact that the cost of lending for banks is considered high if one takes into account the mandatory reserve allocations at the Palestine Monetary Authority (PMA).

- Therefore, the government should adopt the establishment of a bank similar to the concept of a Grameen Bank, despite many differences in terms of living standards, the small size of loan amounts, class structure, population size...etc.

· We call for reducing the disparities between segments of Palestinian society to minimal and more equitable levels, in economic and social development that includes everyone and is sustainable in the long term.

· On 6-12-2020