The State Guarantee Fund for Small Businesses

This paper examines the Fund’s conditions for granting assistance and their gender consequences

In 2006, the Nobel Peace Price was awarded to Prof. Muhammad Yunus and the Grameen Bank of Bangladesh for their efforts to generate bottom-up social and economic growth. In 1967, Prof. Yunus of Chittagong University established the Grameen Project as a means of extending credit to the country’s poor villagers. Following its initial success in a village adjacent to the university, the program was expanded in 1979 to other regions, with support from commercial banks and the Central Bank of Bangladesh. National legislation transformed the Grameen Project into an independent bank in 1983, with 90% of the shares owned by borrowers and the remaining 10% by the government. Other countries have since adopted the project as a model. As of May 2006, the bank had 6.83 million borrowers, 97 % of them women – for which Prof. Yunus has the following explanation: “Women have plans for themselves, for their children, about their home, the meals. They have a Vision. A man wants to enjoy himself”.

Whether or not one agrees with Yunus’ analysis, there is no doubt that the higher social and economic standing of men allows them greater access to sources of credit. The Grameen Bank and microcredit organizations like it have created accessible sources of credit to poor populations, particularly women, thereby helping them to exit the cycle of poverty. These organizations aim to fill the gap between the high demands set by banks as conditions for granting credit and the need for credit by populations unable to meet those demands. Israel has no such microcredit organizations; the primary supply of credit to small businesses is the banking system. Small and microbusinesses constitute 97% of all businesses in Israel. Over the past decade, they have created many new jobs, yet they account for only 5% of all bank credit granted in the country. The greatest obstacle to the establishment of new businesses that lack capital and guarantees is the inaccessibility of credit.

Israel has two government-sponsored funds for assisting small businesses. One is the Independent Immigrant Fund established by the Ministry of Absorption, and the other (the focus of this paper) is the State Guarantee Fund for Small Businesses. Since its establishment by the government in 1993, the Fund has undergone a number of changes. Its current operations, directed by Tavor Economic Consultants Ltd., have remained unchanged since 2003. The two types of assistance it provides to small businesses are:
1. Loans to businesses that have insufficient cash flow.
2. Loans to establish new businesses and expand existing ones.

This paper examines the Fund’s conditions for granting assistance and their gender consequences. As with most government funding, the assistance provided by the Fund is based on an assumption of equality between men and women, without taking into account either the actual needs of women or their position in society.