1. WORK MODEL IN STATE GUARANTEED FUNDS SME’ S ISRAEL MICHAEL TAVOR MARCH 2014 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800 1

2. SME’ S – HOW MANY, HOW BIG? 370,000self employed 90,000SME'S 2,500Big enterprises 462,500Total 2 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800

3. 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 Israel www.Tavor.Biz Tel. 972-9-7776800 3

4. 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 Israel www.Tavor.Biz Tel. 972-9-7776800 4

5. 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 outcome Sub investment of capital per employee in SME’s => low productivity => low salaries Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800 5

6. 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 Israel www.Tavor.Biz Tel. 972-9-7776800 6

7. 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 Israel www.Tavor.Biz Tel. 972-9-7776800 7

8. 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 Israel www.Tavor.Biz Tel. 972-9-7776800 8

9. 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

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

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

12. CURRENT FIGURES (TAVOR) Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800 12

13. CURRENT FIGURES -2 (TAVOR) 13 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800 TOTAL NEW FUND From 4/2012 – 2/2014 OLD FUND 10/2003 to 4/2012 20,100 5,30014,800 REQUESTS 9,821 2,5007,321 APPROVED 838234604 TOTAL M US$ 869583 AVERAGE K US$

14. 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 Israel www.Tavor.Biz Tel. 972-9-7776800 14

15. DISTRIBUTION BY ECONOMIC MAJOR BRANCHES 15 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800

16. CHANGES THROUGH YEARS 1.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 Israel www.Tavor.Biz Tel. 972-9-7776800 16

17. SMART (GOVERNMENTAL) DECISIONS 1.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 17 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800

18. FUTURE THREATS  Declining of quality of financial check  Increasing of default rate  Deteriorating of service for small businesses with limited knowledge about processes declining access to finance  Banks will pour into the fund poison existing credits  Losing mutual trust: banks, public, government 18 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800

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

20. STATISTICS The 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 20 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800

21. TAVOR ECONOMIC CONSULTANTS LTD. Experience and Devotion Thank You 21 Tavor Economic Consultants Ltd. Zarchin 10, Ra'anana 43662 Israel www.Tavor.Biz Tel. 972-9-7776800