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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
1
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
2
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 4
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 5
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 6
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 7
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 8
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
9
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
10
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
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%
11
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
CURRENT FIGURES (TAVOR)
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
12
$838mRequests
20,100
loans9,800
49% Approval rate,
)higher then regular banks(
Defau l t ra te is about 3 .5% in money terms (Net defaul t a f ter la te co l lect ion by banks
and re turn to the s ta te is about 3%)
Cost of operation 0.6% - 0.8%
CURRENT FIGURES -2 (TAVOR)
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Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
TOTALNEW FUND
From 4/2012 – 2/2014 OLD FUND
10/2003 to 4/2012
20,100 5,300 14,800 REQUESTS
9,821 2,500 7,321 APPROVED
838 234 604 TOTAL M US$
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800 14
DISTRIBUTION BY ECONOMIC MAJOR BRANCHES
4% 4%
30%
34%
1%
27%
construction agriculture commerce services tourism industry
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Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
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
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
16
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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Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
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
18
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
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
19
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
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. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800
TAVOR ECONOMIC CONSULTANTS LTD.
Experience and Devotion
Thank You
21
Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israelwww.Tavor.Biz Tel. 972-9-7776800