work model in state guaranteed funds sme’ s israel michael tavor march 2014 tavor economic...

WORK MODEL IN STATE GUARANTEED FUNDS SME’S ISRAEL MICHAEL TAVOR

MARCH 2014

Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800

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SME’S – HOW MANY, HOW BIG?

370,000 self employed

90,000 SME'S

2,500 Big enterprises

462,500 Total

self employed

SME'S

Big enterprises

got loans from the fund

used regular banking credit

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WHY BANKS DO NOT WANT TO LEND TO SME’S

1. Perception of risks by banks’ boards and officials

2. Cost benefit analysis on personal base and employment hazard of bankers

Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 3

DETAILS AND CLARIFICATIONS Bankers find it takes too much time to approve a SME’s loan

relatively to bigger firms

unreliable data, figures are not stable, easily subject to manipulation

Private customers are easier to be treated on statistical basis. focus on the passive.

Employment hazard


THE OUTCOMES OF THE “MARKET FAILURE”

“Sub-Financing” for SME’s in relative parameters

Sub-Finance per employee by SME’s

Sub-Finance per unit of GDP produced by SME’s

Secondary outcomeSub investment of capital per employee in SME’s

=> low productivity => low salaries


DOES THE GOVERNMENT HAVE THE KEY FOR THE PROBLEM? The government promises a safety cushion, but…

Actually it takes time and efforts to build

mutual trust among the banks,

the government and the SME’s


THE GOVERNMENTAL SOLUTION: AIMED TO MEET THE WEAKNESSES OF THE MARKETS

Which means mainly:

1. Solving the information problem

2. Decreasing risks for the banks and bankers


1. The governmental guarantee to loans is 70%-85% per company, but limited for the whole portfolio.

2. That rate is subject to offerers in tenders, which competed on the rate of leverage. It can be 10%-20%

3. Supporting the banks with better information at no costs.

4. Changing the system of reimbursement with less bureaucracy.

1. Putting deposit in the participating banks to cover defaults

2. No intervention at all in the discretion of the managing body in approving loans

3. More degrees of freedom (for the managing body) in treating businesses which face difficulties

DETAILS


ELIGIBILITY TERMS FOR A LOAN Businesses that employ up to 70 employees and with an

annual turnover of up to 25 million NIS - small businesses. 100 millions = medium businesses*

The applicator’s bank account is not restricted or seized

The business has no unsettled debt the tax authorities

____________________

*differences between two groups refer to total budget of each rout and different treatment to stockholders mutual collaterals

Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel

www.Tavor.Biz Tel. 972-9-7776800

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CREDIT TERMS

The credit limit for a single business is 500,000 NIS or 8% of the turnover (the highest number)

Period of 5 years, with a six months “grace” Interest rates match market terms. New investments, demand of 20% of the

credit approved

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ESTIMATED COSTS

The government’s fee is 250 NIS when a loan approved it should be paid risk premium fee of 0.5%

- 1.5% from the loan depends on size of firm

Other estimated costs For 70% 1.5% - 2.5% of the loan (using consultants) For 30% 0.2% - 0.5% of the loan (self applicants)

Sum of Costs for small business: 0.5% + 1.3%(average consultancy costs) 1.8% for 5 years

Interest (mostly) P+3%=5.25%

Effective interest on a yearly basis approx. 5.7%

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CURRENT FIGURES (TAVOR)


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$838mRequests

20,100

loans9,800

49% Approval rate,

)higher then regular banks(

Defau l t ra te is about 3 .5% in money terms (Net defaul t a f ter la te co l lect ion by banks

and re turn to the s ta te is about 3%)

Cost of operation 0.6% - 0.8%

CURRENT FIGURES -2 (TAVOR)

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TOTALNEW FUND

From 4/2012 – 2/2014 OLD FUND

10/2003 to 4/2012

20,100 5,300 14,800 REQUESTS

9,821 2,500 7,321 APPROVED

838 234 604 TOTAL M US$

86 95 83 AVERAGE K US$

CONTRIBUTION TO EMPLOYMENT

Businesses benefited credit from the fund employ more than 90,000 workers.

The added employment potential is nearly 21,500 workers


DISTRIBUTION BY ECONOMIC MAJOR BRANCHES

4% 4%

30%

34%

1%

27%

construction agriculture commerce services tourism industry

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CHANGES THROUGH YEARS1. Special treatment to new enterprises

2. Limit time treatment

3. Government trust her agent to cope with businesses which face difficulties

4. Committee gives fast answers to special cases


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SMART (GOVERNMENTAL) DECISIONS1. Not interfering in the interest rates

2. Not trying to allocate funds to preferred districts, economic branches or industries

3. Wide degrees of freedom to the managing bodies

4. Two competitive bodies

5. Active steering committee

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FUTURE THREATS

Declining of quality of financial

check

Increasing of default rateDeteriorating of service for small businesses

with limited knowledge about processes declining access to financeBanks will pour into the fund poison existing

creditsLosing mutual trust: banks, public, government

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SIDE ADVANTAGES

Collecting crucial statistics about the SME’s (unavailable from other sources) for future policy steps

Credit for SME’s is higher also in non-participating banks

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STATISTICSThe managing body checks the SME’s after 6-8, 12-15, 18-24 months from the executing the loan

Finance profile and survival rates

Banks statistics

Geographical distribution

Employment development information

Business size

Years of establishment

Sector

Loans required for working capital or new investments or new enterprises

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TAVOR ECONOMIC CONSULTANTS LTD.

Experience and Devotion

Thank You

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work model in state guaranteed funds sme’ s israel michael tavor march 2014 tavor economic...

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