Emergency Business Loans in Israel: Reaching Arab-Owned Businesses

As part of their economic relief efforts for Israel since October 7, JFNA established a fund for emergency low-interest loans (0-6%) for small and medium-sized businesses affected by war that struggle to access traditional banking credit. As 17% of all Israeli businesses, Arab-owned businesses are a natural and important target group for these loans.[1] In addition, Arab business-owners face unique challenges in accessing traditional credit due to a range of financial and socio-economic barriers, and Arab communities suffer from surging crime, fueled in part by black-market lending.

By May 31, $29M out of $58M in loan funds raised were allocated through five non-bank lending platforms providing emergency loans across the country: Ogen, KIEDF, Daroma-Tsafona, Bizi, and Spark Il. Many of these platforms were already offering emergency loans, meaning that the JFNA funds added significant resources and attention to this urgent issue.

Of the platforms, only KIEDF and Ogen, both experienced lenders in Arab society,  are reaching Arab-owned businesses. As of the May 31st report, an impressive 28% of KIEDF’s JFNA-funded lending and 17% of Ogen’s, have gone to Arab society. Still, even for these platforms, reaching Arab borrowers remains a challenge.

Data as of May 31, 2024. Source: JFNA

*A loan completion rate of about 1/3 of applicants is about standard for social loans.

Economic and Security Lifeline

Overall, small-and-medium sized businesses employ about 60% of Israel’s private sector workforce and produce more than 50% of its economic outputs. In Arab society, the numbers are even higher: small and miniscule businesses employ 66% of the entire Arab workforce. According to the Labor Market Pulse report, in July, out of all job-seekers, 63.1% were non-Haredi Jews, and 28.4% were Arabs. Arab cities, particularly those affected by evacuations, had some of the highest rates of registered job-seekers in the country, including Umm al-Fahm (7.4%), Acre (7.1%), and Rahat (6.3%).

In addition, given long-standing barriers to financial inclusion, many Arab citizens resort to black-market lending to sustain their businesses or choose to shut down altogether. This strengthens crime organizations in Arab society who have driven homicide rates up to unprecedented numbers, paralyzed Arab communities, and made personal security the most pressing concern for Arab citizens today.

Emergency business loans offer a lifeline for Arab society that also contributes strategically to enhancing financial inclusion and combating spiraling crime and violence. Still, despite low-interest rates and lenient terms, only lenders with developed capacities to work in Arab society are reaching Arab-owned businesses at all, and even they struggle to reach key target groups within that.

Barriers

Along with the barriers described in IATFs report with the Adva Institute on financial inclusion of Arab society, KIEDF and Ogen describe unique circumstances that make emergency loans both more important and more difficult to provide in Arab society:  

• Meeting eligibility criteria: While every loan program has different terms, all require proper documents and business records to prove eligibility. Through KIEDF, for example, all businesses must show annual turnover no greater than NIS 5 million per year, and businesses not located along the northern or southern borders must demonstrate a 25% reduction in income since the beginning of the war. In Arab society, many of the most at-risk small businesses are family run or very small operations, often lacking formal business practices. Providing credible proof of business activity and lost income is much more challenging in these cases than for proprietors who are better integrated and aware of formal systems. 
• Awareness and digital literacy: In addition to the financial literacy barriers described above, marketing and digital literacy barriers also exist. Most lending platforms do not advertise or market in ways adapted to Arab society: neither in Arabic, in Arab communities or media channels, nor in ways that make Arab business-owners feel these loans are actually intended for them. Furthermore, lending platforms like Bizi or Spark IL are only accessible online, requiring borrowers to have adequate digital skills and the independent capacity to gather necessary documents and complete an online application. For the vast majority of Arab small business owners, these barriers are nearly unbridgeable.
• Fear and mistrust: Lending is so closely associated with punitive violence in Arab society that many borrowers are suspicious and fearful of any lending platform. Additionally, low or no-interest loans seem unrealistic and raise suspicions. Beyond support understanding terms, compiling documentation, and submitting applications, many Arab business-owners require face-to-face accompaniment to establish trust with the lender and the entire process. 
• By Region: Some of the JFNA-funded loans prioritize lending to businesses 20km from the border with Lebanon and 40km from the border with Gaza.

North: Ongoing uncertainty about when reasonable economic activity will resume reduces business-owners’ willingness to take on even very-low-interest debt.

South: The Bedouin community in the Negev has the greatest poverty rates and least access to formal credit and financial systems among Arab citizens of Israel. Thus, business owners in this community have even less access to information and much higher levels of mistrust in state and banking institutions. Very few businesses have applied for loans even through lenders like KIEDF that are better known in Bedouin society through long-standing microfinance programs.

Looking Ahead

Non-bank loans are an important alternative for businesses and individuals in the Arab community even in normal times. The emergency lending programs currently underway are an important opportunity to further develop capacities and awareness of financial inclusion needs of Arab communities in Israel. 

As the only non-bank lenders with a mission to expand access to credit for Arab communities, both KIEDF and Ogen are committed to further developing their capacities. Both organizations emphasize the importance of dedicated personnel to assist with loan application processes, developing outreach and marketing suited to Arab society, increasing the loan funds available for Arab borrowers, and launching specialized services as needed to ensure Arab borrowers can complete and utilize their loans effectively. 

KIEDF has a longstanding presence and brand-recognition in Arab communities and reaches some of the most vulnerable borrowers. With an extensive network of employees in the North and South, KIEDF has recently added staff to serve the clients in the Center. They are now launching business accompaniment services to support development of formal business practices and systems. Ogen, newer to lending in Arab society, reaches slightly larger (though still small) businesses. They have been working to adapt the processes to the needs of Arab society. This includes increasing public awareness and trust, hiring Arab staff, adapting to a multicultural team, and planning to establish a stronger presence in the South and North.

Both organizations also encourage more organizations and government programs to look at financial inclusion needs and opportunities in Arab communities. At 20% of the population and nearly 40% of Israel’s citizens living in poverty,  improving access to banking, credit, and formal financial systems—along with the associated literacy, trust, and security—is crucial for Israel’s broader economic recovery and growth.

Special thanks to the generous contributions of time, materials, and insights from staff at JFNA, KIEDF, and Ogen towards the production of this report.  

[1] Roughly 105,000 out of 620,000 businesses in Israel are small-to-medium Arab-owned businesses.