Determinants of Small Business lending in Palestine

ABSTRACT: Palestine is a land which 80% economy is occupied with small and medium enterprises. The aim of this paper is to determine the factors that drive banks or other financial institutions‟ decisions to provide loans to small and medium enterprises‟ owners specifically in Palestine. In order to achieve the study aim six banks and four micro finance institutions have been chosen. Loan guarantee fund programs and donations, business size and inflation were used as independent variables that influence banks or MFIs lending decision. The collected data was for the period of 6 years (2008-2013). Regression analysis is used as an effective tool to drive final results. The findings illustrate that selected variables such as asset size have higher impact on both banks and MFIs lending decision, while inflation have no any significant impact on banks but negative impact on MFIs. The funding programs and donations have positive impact on banks and MFIs respectively. The study also comprises the detail review of the SMEs role in Palestine and previous researches. The study is equally useful for SMEs and bank owners to understand the factors influence on SMEs loans. Keywords: SMEs, SMEs‟ issues, determinants of SMEs lending, SME financing. …………………………………………………………………………………………………………………………