The D. Grey art cafe in Jerusalem, opened by Leah Levitt

by Natalie Page - appeared in Haaretz Philanthropy Supplement

Based on the national 'Partnership 2000' platform, the Jewish Agency for Israel's Loan Funds Initiative works to encourage, support and promote economic development in Israel's geographical and social periphery

For a growing number of people worldwide, the word 'philanthropy' no longer means just giving money to a street beggar or signing a million dollar check. It is taking an active role in forming and executing original programs that effectively help their target audience.

Enter the Loan Funds Initiative. "The fund is designed to fill the needs of many prospective entrepreneurs who are ineligible for bank loans as they are considered high risk initiatives," says Offer Isseroff, the Jewish Agency for Israel Priority Regions Division Director. The loan funds address this unmet need. The Jewish Agency contracts with the banks to undertake part of the financial responsibility in the event of default of repayment and guarantees the loans if the applicant falls within the designated criteria.

David Stern's 'Connections' magazine

Relying on an impressive career in banking, Evelyn Kenvin, chairperson of the NY/UJA Federation's loans fund taskforce explains that "the economy requires large and high-tech businesses, but it also needs the small businesses for employment, goods and services, etc. In Israel, it happens to be difficult for many entrepreneurs to get loans for small- and medium-size businesses because of the collateral requirements and the difficulty the entrepreneurs have coming up with the appropriate collateral even when they have a good business idea. What we have done philanthropically is to create pools of funds that become collateral pools that induce the bank to give loans."

A clear business plan

The process is pretty straightforward. Applicants visit a branch of Bank Otsar Ha-Hayal or a small business development center and fill out a short preliminary request form. If the applicant meets a set of basic requirements, he is referred to a financial adviser who helps him prepare a clear business plan. He then appears before a committee made up of three entities: a chairperson, who is usually a volunteer with an extensive business background, a bank representative and a Jewish Agency member. If the committee approves the initiative, the bank issues the loan, which is provided subject to implementation of the business plan, and is ensured through ongoing evaluation.

By taking part in this process, over 1,000 fortunate applicants have been given the opportunity to open shop. These include a couscous factory in Beer Sheva, an ecological building company using bricks made of earth in Sde Boker, a producer of chocolates in Mitzpe Ramon and a bakery in Carmiel.

Beyond securing much needed finance, the initiative provides an extensive and ongoing support system, comprised of experienced volunteer businessmen, which improve the new business's chance of success. "We have met with people who have great ideas but do not know how to turn them into viable business ventures. They think that it's easy to start a new enterprise and through building the business plan they get a better idea of what is actually required," remarks Isseroff. "This is complemented by our volunteers' constant contact with the entrepreneur, who are able, upon an inquiry from the bank, to phone and see why they have fallen back in their payments, which is at times all that is needed to bring them back on target. That is part of the reason why the businesses survive."

How it works

The initiative, currently in its seventh year of operation, includes eight funds which distribute approximately 200 loans each year. The loans are up to NIS 250,000 each and the average loan is NIS 150,000. The loans' repayment schedules - up to six years, depending on the level of funding - usually include a six-month grace period. The money is leveraged so that for every dollar, the bank puts up 3-4 dollars. Successful applicants also enjoy relatively low interest rates on their loans. Once the loan is returned, the money is redirected to new applications, thereby ensuring the project's ongoing impact.

Most of the loans are unded on a geographical basis, due to the project's inception in Partnership 2000, a Jewish Agency program in which Israeli regions form partnerships with Jewish communities abroad with the aim of creating communal and personal bonds along with establishing joint business, social and cultural projects. Some of the funds are designated for specific populations, such as new immigrants, female entrepreneurs and mixed Arab-Jewish towns. All Israeli citizens can apply for these loans, subject to each fund's specific criteria.

Although acting as part of a business initiative scheme, the organizers stay focused on their philanthropic aim of encouraging financial growth in the periphery. "We demand a sound business plan with long-term prospects and are willing, at times, to take a higher risk, such as the fund for immigrants from povertystricken countries. Even though we know that one out of 4-5 of their small businesses will probably fail, we take the chance because it also means that 3-4 enterprises will succeed," explains Isseroff.

For the people behind the initiative, it is the bi-products that drive them forward. "Studies have shown that, on average, each new small business provides employment for four people, which represent four families that benefit from the program," notes Isseroff.

Looking at the advantages from another perspective, Co-Chair of the Ness Loan Fund for the Negev Marilyn Flanzbaum remarks that "the more sophisticated donor understands the importance of the future development of the Negev and of Jews living in the Negev, and that the only way that they will stay is if their business is there, not just their place of employment."

The funds' success rate, based on the number of businesses that fulfilled their financial obligations, is in most cases close to an impressive 100%. "Our default rate on the Jerusalem loans is 1%, and for the immigrant loans it is between 5-6%," states Kenvin, while emphasizing that "the objective is not to have the lowest default ratio. It is to find the area where you are really making a difference in creating jobs, and sometimes you have to stretch a little."

The Jerusalem Small Business Loan Fund

The Jerusalem Small Business Loan Fund was established because "we were trying to think of a way to help Jerusalem during the difficult time of the second Intifada," explains Kenvin, "and businesses in Jerusalem were really suffering at that point." So far, the fund has helped create 888 new employment opportunities.

One of the businesses to benefit from this fund is the La Boca restaurant in Jerusalem's German Colony neighborhood. After years of working as a chef in a number of restaurants, a visit to the La Boca suburb of Buenos Aires, Argentina, inspired Guy Kimhi to open a Latin American-style kosher restaurant that serves a mixture of culinary cuisines, such as enchiladas, assado, tortillas and paella. Through the Jerusalem MATI Small Business Development Center, he applied for a loan two years ago and the rest is history.

Guy Kimhi, owner of the La Boca restaurant in Jerusalem

Kimhi remarks that "it is very hard to open a new business: the banks avoid giving loans, there are always unforeseeable hurdles, and not everything works according to plan. I have no doubt that the assistance I received both financial and through mentoring, provided me with the initial support I needed, and they are definitely partners in my success." Along with experiencing self-fulfillment and work satisfaction, Kimhi also provides a stable income for 20 employees.

Ness Loan Fund for the Negev

Mr. Mack Ness, who followed an extremely Spartan lifestyle in a secluded farm with no connection to his Jewish community, generously bequeathed close to $20 million to the Jewish Federation of Central New Jersey. The only thing that he asked in return is that a memorial be established in Israel for himself, his brother, and his mother. The Federation decided to honor his wish by establishing the Ness Loan Fund for the Negev.

"About 60% of our loans have been in the agricultural sector and that's really in keeping with the Negev itself and, of course, with the donor, Mr. Ness, being a farmer" notes Gerry Flanzbaum, Co-Chair of the Ness Loan Fund for the Negev. Within its scope of operation, it has also provided much needed support to the citizens of Sderot. "City residents have received a number of our loans and we have been down there on a number of occasions, have heard their concerns and we continue to make loans in Sderot, which I don't think any bank is willing to do today," points out Gerry Flanzbaum.

Yaad Plastic Industries Ltd. is one of 115 new businesses whose loans have been authorized by the Fund during its two years of operation. Located in Sderot and providing work to 15 local residents, the company recycles used plastic, such as greenhouse nylon, plastic bags, drip irrigation pipes and bleach containers, to create electricity pipes used in building construction. "Our products are very environmentally friendly, with 85-90% of the pipes we produce made out of recycled material," states Yuval Barda, the company's vice president. When asked about the loan, Barda notes that "today, in order to get a loan, you have to come and show actual results, which we obviously could not supply. When we came to the Jewish Agency with the business plan, they didn't give us a hard time like the bank. They straight away provided us with the financial support we needed."

Although the constant Qassam attacks severely impede their work, Barda is certain that the business is a safe bet. In his closing remarks, he wishes "to thank the nice group of people called the Jewish Agency for all their time and effort, and I hope that they continue supporting us and other small business entrepreneurs; it can only do good."

Dr. Asi Sharon's dental clinic