August 14, 2007
The United Jewish Communities is securing $200 million in
loan guarantees to help small businesses in Israel's northern
region, such as Sarah Harkin's holistic medicine and herb shop
in Rosh Pina, which was almost put out of business by last summer's
war. Photo Credit: Jonathan Levine
By Jacob Berkman
ROSH PINA, Israel (JTA) -- When Hezbollah rockets started falling on Kiryat Shemona last summer, Dror Museri shut down his locksmith, safe and bike shop and fled with his wife and twin toddler daughters to Tel Aviv.
The three-man operation his father started 40 years ago lost an entire month of income during the 2006 war against Hezbollah, and the situation got worse upon their return.
"We started to pick up ourselves from that very hard month, but in the first days, the first weeks, we didn't have one customer," he told JTA. "Nobody came to the store. No customers. No business. No nothing."
A year later, he still has not recovered.
It is small businesses like Museri's that the United Jewish Communities is trying to save by allocating more than $35 million to boost the economy in northern Israel, the region hit with thousands of Hezbollah rockets during the war. At the center of this economic initiative are two projects that guarantee loans for small businesses.
The money is part of the $360 million UJC and its companion network of North American Jewish charitable federations raised during their Israel Emergency Campaign. The funds are also going to help rebuild the North, improve its education system and provide ongoing treatment for trauma victims.
Israeli Prime Minister Ehud Olmert claimed in a meeting last week with American journalists that the economy in the North is booming. But professionals overseeing the UJC's projects say that the area is in dire financial straits. While Israel's overall economy is expanding at an annual clip of about 4.7 percent, according to Israel Discount Bank's latest report, most of that growth has come in the big business, export and high tech sectors -- and primarily in the center of the country.
Many small businesses up North are still floundering.
Museri, for example, estimates that his sales are down about 35 percent from last year. And the government has been of little help, reimbursing him only 20,000 shekels, or $4,737, for his and his father's salaries for the month of the war.
Museri said he is in relatively good shape compared to some of his neighbors. One friend who owned a motorcycle repair shop had to close, as did another who owned a restaurant, he said.
The UJC, along with the Jewish Agency for Israel and the American Jewish Joint Distribution Committee, are working with four Israeli small business incubators to provide consulting services to small businesses like Museri's to help them grow in the aftermath of the war.
Once the businesses have gone through this mentoring process, the UJC works with The Koret Israel Economic Development Funds -- run by the San Francisco-based Koret Foundation -- to help them secure bank loans.
More than any other program UJC is funding, its economic development initiative is key to keeping Israelis in the area, said Carl Kaplan, the Tel Aviv-based managing director of the Koret development funds.
"It is a worldwide accepted axiom that small businesses create jobs," Kaplan said. "If you pump money into small- to-medium businesses that are not tourist based, you have an opportunity to further develop the economy in the North."
Northern Israel faces several inherent obstacles that were present even before the war. It is a heavily fragmented region that, aside from Haifa, is made up of scores of small municipalities, giving it no real commercial center.
Travel within the region is difficult, given the lack of infrastructure, including decent roads and a rail system. But the area's greatest economic weakness is lack of capital, experts say.
Israeli banks give a disproportionate number of their loans to large companies -- a particularly pressing problem in the North, where the estimated 90,000 small businesses, with roughly 25.4 billion shekels, or $6 billion, in combined sales per year, make up the core of the area's economic structure.
The banks require collateral -- as much as 100 percent -- that would be considered extreme in the United States, according to Kaplan. And the eligibility requirements are strict -- banks will not accept small items, including office furniture and machinery, because the after market value for such items in Israel is small.
During the war, many businesses leveraged what they had to secure loans just to pay for their inventory, leaving them with no collateral for rebuilding efforts. But the Koret development funds, with a record dating back to 1994 of orchestrating loan guarantees for small businesses in Israel, have worked out a contract with Bank Otsar Hachayal and Mercantile Discount Bank, whereby the banks will loan $6.25 dollars for every dollar that UJC allocates.
The UJC is putting up $7 million that the Koret development funds will leverage into about $35 million in loans, with the goal of securing loans for about 650 medium-sized businesses and another 250 family-run, micro-businesses.
A similar deal is in the works with Tzafona, an Israeli economic development company chaired by Eitan Wertheimer, who recently sold 80 percent of his Iscar Metalworking Companies to Warren Buffet for $4 billion. The UJC has allocated $17.5 million for that project.
This second program could result in an additional $165 million in loans -- which would mean a total of $200 million in total for northern businesses, as a result of the UJC-Koret partnership. In comparison, over the past 13 years, the Koret development funds have secured about $140 million worth of credit resulting in 4,650 loans for businesses all over Israel that, Kaplan said, have strengthened or created roughly 20,000 Jobs.
The two new loan projects, Kaplan estimated, would create 1.5 jobs per family in northern Israel. The jobs will pay at least twice the minimum wage.
Howard Rieger, president and CEO of UJC, said focusing on these business loans made sense.
"The question is how do you encourage people to stay and try to make it up there and to try to survive?" Rieger said. "From a loan perspective, the money just wasn't available at that level."
Among those who have benefited is Shiri Harkin, who sells holistic medicine made from her homegrown herbs out of a shoebox -sized storefront next to her house in Rosh Pina. Unable to sell her inventory after the war, she bounced several checks, which got her on a blacklist, making it impossible to write checks or get credit.
But she has been working with two Israeli incubators, which helped her straighten out her finances and obtain a small loan of under $10,000. Now she has two deals with chains of spas that will use her line of herbal remedies.
As for Museri, the locksmith, safe and bike shop owner, he has taken out two loans totaling $14,000 -- to pay for inventory he bought before the war and was unable to sell -- that he hopes will help bail him out.
"The war has caused a lot of stress in my life. I have a family to take care of. We have started to think about what will happen in the future and that we have to keep money. We changed our lives because of the war," Museri said.
Now, with the help of one of the economic incubators, he is trying to be hopeful about the future. "They give us advice. They help us any time we need."