MAS Discusses the Role of Postal Banks in Providing Financial Services outside the Commercial Banking System
Ramallah, Wednesday, August 10, 2022. The Palestine Economic Policy Research Institute (MAS) held a roundtable meeting entitled “The role of postal banks in providing financial services outside the commercial banking system and the feasibility of providing this service in Palestine”, with the participation of a group of sector specialists and interested persons. Participants either attended in person at MAS headquarters or joined the meeting via Zoom. The background (discussion) paper on the topic was prepared by the Director of Research at the Institute, Dr. Rabeh Morrar and Research Assistant Mr. Sabri Yacub. Mr. Qadura Fares (President of the Friends of Palestinian Detainees Club), Mr. Mo’az Daraghmeh (Director General of Palestine Post) and Mr. Anan Al-Samari (Compliance Director at the Palestine Monetary Authority), presented their comments on the discussion paper in the presence of the group of experts.
Dr. Morrar opened the session, emphasizing the importance of the subject under discussion and highlighting the fact that this paper lies within the framework of the Institute's mission to monitor and assess emerging economic and social issues of concern to the Palestinian citizen and decision-maker. MAS holds periodic roundtable sessions to discuss these topics, as a tool for proposing policy recommendations that are useful to the decision-making process. This will have a positive impact on the economy and Palestinian citizenry. He also indicated that the postal sector, especially in developing countries, plays a leading role in promoting financial inclusion, due to its widespread presence in rural and poor areas. It is considered the second-largest contributor to financial inclusion in the world. He thanked the Palestine Investment Fund for sponsoring this meeting.
MAS Background Paper
In presenting the paper, Dr. Morrar explained that postal banks usually target groups that cannot access traditional banks - either because of the high costs of traditional banking services, or because they do not have sufficient guarantees to qualify for such services - or groups that are looking for more comprehensive and affordable banking services within the public sector. He also indicated that the role of the postal sector around the world is not limited to providing traditional services, but extends to expanded and more advanced financial and banking services. This includes savings’ accounts, electronic financial services, credit cards, ATM services, prepaid cards, money transfer, insurance policies, personal loans, mortgages, investment products, currency exchange, financial advice, as well as other services. He explained that recently, the occupation authorities have been deducting the value of aid provided by the Palestinian government to the families of martyrs, wounded and detainees from clearance funds. In 2020, it issued Military Order No. 1827, which forced banks to close detainees’ bank accounts. Resultantly, the Palestinian government paid the salaries of all detainees, wounded and the families of martyrs in full through Palestine Post, which is outside the scope of Israeli threats directed against local banks operating in Palestine.
The Role of Postal Banks in Achieving the Sustainable Development Goals
The paper explained that postal banks can contribute to achieving sustainable development goals through their ability to reduce poverty and deprivation levels for the less fortunate, enhance per capita income, empower women and promote gender equality in access to financial services. A study conducted by the World Bank showed that the postal sector provides financial services better than traditional banks, especially for people who are excluded from the banking sector, particularly those who live in rural areas and suffer from economic instability.
Justifications for a Postal Bank in Palestine
The paper shows that one of the most important justifications for postal banks in the Palestinian context could be to provide financial services to detainees, the wounded and the families of the martyrs. The Palestinian government, based on the Detainees and Ex-Detainees Law No. 19 of 2004, pays salaries to more than 11,000 detainees and ex-detainees, equivalent to around NIS 52 million annually. During 2015-17, the Israeli Knesset approved ten laws and procedures related to detainees, while tightening associated penalties. The most punitive of these measures was the issuance of Military Order No. 1827 by the Minister of Defense. It was supposed to come into effect within three months, prohibiting Palestinian banks from maintaining detainees’ accounts. However, the decision was frozen, to become effective at the start of 2021, given its mass refusal at official and popular levels. Based on this decision, Israel deducted part of its financial dues to the Palestinian National Authority, equivalent to the amount paid by the Palestinian government to detainees and the families of martyrs. Subsequently, the Palestinian government decided, at the end of March 2021, to pay the salaries of Palestinian detainees through post offices across the West Bank and Gaza Strip. The first payment was made on June 4, 2021, through 20 ATMs in various governorates.
The Role of a Postal Bank in Promoting Financial Inclusion in Palestine
A study prepared by MAS on financial inclusion - the only one of its kind in Palestine - indicates that the rate of financial inclusion for the adult population amounted to only 36.4% in 2015. Figures issued by the Palestine Monetary Authority (PMA) for 2021 show that only 46% of adults in Palestine have (at least) one bank account, and 7% have taken out (at least) one bank loan. Post offices are more accessible to marginalized groups such as the poor, women, people outside the labor force, the unemployed and the population of Area C, through their work as a provider of various financial services such as money transfer, bills’ payment, savings and insurance services.
Enhancing Sources of Income for Palestine Post
The postal sector faces many difficulties or obstacles that impede its development, negatively affecting the levels of service that it provides. The occupation authorities have not committed to implementing the direct mail agreement signed in 2016, and still do not allow the export of postal consignments directly through Jordan. Intense competition from private transportation and distribution companies, and Israel Post, requires that Palestine Post reform and develop its regulatory framework, with the aim of increasing its profitability. Therefore, officials at Palestine Post consider the provision of financial services to be a great opportunity to enhance financial revenues. This provides the necessary budgets for the development of postal infrastructure - and its spread – across various regions, in addition to sourcing qualified human resources that are proficient at managing the rapid growth in demand for postal services, with additional competencies in banking services.
Feasibility of Establishing the Palestine Postal Bank and Associated Challenges
Article 29, entitled “Postal Services”, in Annex III of the Oslo Agreement states: “This field includes, inter alia, planning, policy development and implementation, as well as the management and control of post offices and postal services, and all financial transactions and activities in postal units commonly known as a postal bank”. Despite the practical need to establish the Palestinian postal bank, there are political risks and challenges that must be taken into account by regulatory and supervisory authorities. Accordingly, the establishment of an official postal bank, licensed by PMA just like commercial banks, is considered impractical and is not on decision-makers’ mind in Palestine now. This is largely due to political consequences, and the possibility of such a bank and PMA becoming subject to punitive measures by the Israeli occupation, within the parameters of Military Order No. 1827. Therefore, the optimal solution in the Palestinian case lies in strengthening and expanding the scope of financial services provided by Palestine Post, in order to deliver effective financial services to detainees, the wounded and the families of martyrs. This will allow them to reach new segments of society that are unable to access financial services provided by traditional banks.
Speakers’ Addresses
Mr. Daraghmeh indicated that Palestine Post faces many challenges: obstacles imposed by the Israeli occupation, in addition to poor infrastructure and financial instability. He outlined that the organizational structure of Palestine Post has been modified, in line with the requirements of the Universal Postal Union. He also indicated that Palestine Post incurred a loss of about NIS 40 million as a result of the lack of a postal code for Palestine, which would help in developing infrastructure and accessing human resources. Mr. Daraghmeh pointed out that a postal bank needs a legal framework and qualified human resources to manage it, as well as the improvement of postal infrastructure, in cooperation with other relevant institutions. He added that financial circulation resulting from postal services (cash and non-cash) amounted to NIS one billion.
Mr. Al-Samari stated that PMA seeks to maintain monetary stability based on solid foundations and fair competition, while preserving depositors’ money and managing risks to achieve objectives. It also seeks to enhance financial inclusion, as the number of current banks in Palestine is 13 licensed, commercial and Islamic banks, 380 branches and 700 ATMs. A national strategy was prepared, with the collaboration of the Palestine Capital Market Authority (PCMA), to enhance financial inclusion through awareness campaigns, diversified Islamic banking services, and the development of electronic and digital services. He indicated that the problem lies in transferring the allowances of detainees and the families of martyrs and wounded through commercial banks, without directly opening bank accounts for them at these banks. PMA sought, in collaboration with various authorities, to find solutions to this problem, in a way that guarantees detainees’ rights.
Mr. Fares indicated that we need to establish a postal bank that serves detainees nationally, as well as the wounded, the families of martyrs and marginalized groups. The opportunity to establish a Palestinian postal bank should be used to enhance financial inclusion, and to help members of society and marginalized groups to access financial services. He indicated that the Palestinian government has striven to guarantee the rights of detainees, as it signed the Detainees’ Law in 2004 and prepared regulations for its implementation. He pointed out that the Israeli government fabricated this crisis to steal clearance funds, using the issue of the transfer of funds by the Palestinian government to detainees, the wounded and the families of the martyrs as a pretext. The military order issued by the military governor is a violation of the Oslo Agreement. As a result, Mr. Qadura explained that the idea of transferring allowances to detainees, wounded and martyrs’ families through Palestine Post crystallized in order to avoid sanctions imposed by Israel, under the pretext of combating terrorism.
While attendees agreed that the idea of a postal bank for the provision of financial services through the post office does not aim to crowd out commercial banks, but rather to serve groups outside the commercial banking system, a larger population group in Palestine. As such, it enhances financial inclusion and serves the national interest. However, this requires that Palestine Post develop its systems and infrastructure to be able to provide such financial services through post offices. Comments also stressed the need to involve PCMA, in cooperation with PMA, in plans to establish a bank to ensure the preservation of citizens’ rights, and to exploit technology to facilitate access to financial services, with the least possible time and effort.
