Israel is known as the “Start-Up Nation” due to its unprecedented achievements in entrepreneurship, innovation and technological development—particularly for a country of its size—in recent years.
However, approximately 90% of contributors to the Israeli economy are not part of the Start-Up Nation. Small businesses in Israel are vastly under-supported, lacking access to the services and equal opportunities that would enable them to grow.
Israel’s commercial and financial systems fail to sufficiently appreciate the economic contributions of small businesses, often presenting business owners with obstacles to success. With five banks essentially controlling the market, small businesses and especially those of the low-tech variety are left behind because major banks consider them too risky an investment compared to large businesses.
The share of overall bank credit is vastly unequal, with 84% of credit held by medium and large businesses and the remaining 16% held by small businesses. Yet small businesses represent the largest constituency, as 97% of Israel’s businesses have under 19 employees and are therefore considered “small.”
This exclusionary environment is even more pronounced in the country’s geographic and socioeconomic periphery. Thirty-two percent of Israel’s small and micro-businesses report that a lack of accessible credit constitutes the primary barrier to expanding their businesses and maintaining stability and growth in a competitive market, according to the Ministry of Economy and Industry. Furthermore, official statistics on businesses that are denied loans do not exist, because only those that are granted loans are reported. Other challenges for small businesses include high interest rates, inflation, the supply chain crisis, the “great resignation” in the job market and the government’s tough and bureaucratic regulatory environment.
For these reasons, the Ogen Group, which I lead, made a strategic decision to focus on empowering the high-impact target audience of small businesses. We have sought to influence the Israeli economy from the bottom up, as opposed to the main pattern in the Start-Up Nation, whose top-down influence does not penetrate all layers of society. Without boosting the lower layer of the economy, Israel’s economic gaps could prove dangerous to the country’s existence.
The newly launched initiative SparkIL, the first peer-to-peer lending platform for supporting Israeli small businesses, is now the latest dimension of Ogen’s pursuit of empowering micro-businesses that are usually overlooked by the formal banking system in Israel. By involving members of world Jewry in this process through their crowdfunding of loans for Israeli businesses, this is a first-of-its-kind way to simultaneously support micro-businesses in Israel’s periphery, engage Jews of all ages across the globe and even educate young Jews about the challenges of the micro- and small business environment. It all takes place using a unique online platform that gives lenders substantial engagement experience.
My work with SparkIL is a highly meaningful chapter on a personal level, as it brings together my experience in the social and financial arenas: Serving as a Jewish Agency for Israel emissary in Russia, managing 20% of the Israeli government’s social budget for the Finance Ministry, playing a role in establishing Masa Israel Journey, my time as CEO of the Israeli-American Council and now Ogen. Throughout this journey, I have come to understand that world Jewry is a tremendous asset to the State of Israel. Collaboration between Israel and the Diaspora is something I thrive to create, and I am driven in this pursuit.
In addition to our partnership with SparkIL, one of Ogen’s initiatives that empowers Israeli small business owners is the Ogen-Israel Social Loan Fund, an impact investment fund providing loans to small businesses and non-profit organizations on a low-interest, non-profit basis. Since its inception in 2020, we have lent over NIS 300 million ($86 million) to both businesses and non-profits. Another key Ogen initiative is Keren-Shemesh, which since 2019 has provided small business owners a broad set of tools, training, subsidized services, workshops and connections through a personalized mentoring program serving over 1,200 entrepreneurs.
Ogen is the only non-profit lender in its field to operate on such a scale. We are focused on impact-making, which sets us apart from commercial lenders and banks. For the micro- and small business owner, access to a loan and guidance is life-changing; the impact is also seen through the creation of more jobs in the periphery.
Simultaneously, the Jewish Agency, another founding partner of SparkIL, provides a global platform in Jewish communities worldwide and connects them with Israel, which contributes directly to SparkIL’s strategy and capabilities. Then Ogen brings to the table its knowledge and experience as a critical player in the social finance arena within Israeli society.
The exclusionary environment for Israeli small business owners, which spurred the creation of SparkIL, represents an urgent socioeconomic issue in Israel. A recent study published by the Ministry of Economy and Industry found that in 2021, the scope of the credit granted to small businesses was lower than the corresponding credit in 2019, before the COVID-19 pandemic. Once again, we see that businesses in Israel are not treated equally. By the end of 2020, compared to 2019, credit for large businesses earning more than NIS 100 million ($29 million) increased by 27%, while credit for small and medium-sized businesses increased by only 4%.
In the U.S., the challenges facing small businesses have spurred the creation of resources such as credit unions, community banks and community development financial institutions (CDFIs). These solutions serve to address a market failure. But Israel has not provided small businesses with such solutions and thus has not addressed the market failure. Ogen and now SparkIL are stepping in to fill the void.
Why exactly does it matter for Israel to support small businesses? Forty-two percent of the workforce in the business sector is employed by micro and small businesses. Additionally, 32% of Israel’s population finds itself in the lower fifth of the income bracket, with independent businesses representing the primary opportunity for financial mobility.
The Ogen Group engages supporters in Israel and the rest of the Jewish world, while leveraging government sources of funding to support our mission. SparkIL has taken the next step in that mission, leveraging the influence of world Jewry to help achieve a long-overdue change in the financial market that will substantively support small businesses.
Sagi Balasha is CEO of the Ogen Group.