The Accountant General, Dr. Yaron Zelikha, and the Director-General of the Ministry of Industry, Trade, and Labor, Raanan Dinor, have decided on the establishment of a fund to aid small enterprises, through Mercantile Discount Bank.
Most of the bank branches at which loans will be granted through the fund are concentrated in the Arab sector. The fund was established following an examination conducted by a joint team comprised of representatives of the Accountant General and representatives of the Arab sector, which examined the problem of the participation of small enterprises in the Arab sector in the small enterprise aid fund.
As noted above, the fund will operate through Mercantile Discount Bank, which is widely deployed in the Arab sector and is familiar with the sector's unique characteristics. The fund will begin operating during the coming weeks. Approximately NIS 40 million in loans will be granted through the bank, based on a State deposit of NIS 6.5 million (16% of the volume of the loans), under terms identical to those of the funds operated at other banks.
The currently existing small enterprise aid fund was established in July 2003, in recognition of the importance of the small enterprises sector, which is a significant factor in economic development, has a great impact on job creation, and is one of the economy's major growth engines. Under the fund, the Accountant General makes a deposit with a bank, which serves as collateral for loans granted by the bank to small enterprises. In the first stage, the State provided collateral at the rate of 20% of total loans granted through the fund. In the second stage, as competition increased, the State deposit was decreased relative to the volume of loans, to only 16% today; this step led to an increase in the volume of credit in the fund, without additional budget expense.
This step, aimed at resolving the market failure to provide credit to small enterprises, is part of a broader reform led by the Accountant General over the past year to remove market failures in the various credit markets, most of which were created under the government's responsibility.
The volume of the existing fund and the new fund approximates NIS 550 million. The funds are operated by three banks: Bank Otsar Hahayal, First International Bank, and Mercantile Discount Bank. As of June 2005, some 1,200 loans at a monetary volume of NIS 330 million,have been approved. Note that Bank Otsar Hahayal recently decided to expand the volume of credit in the fund, and to match the fund's leverage to that of FIBI, so that today each of the three banks grants NIS 5.25 in credit to small enterprisesfor each shekel provided by the State.
