When I would look at old pictures from the seventies and see family and friends dressed in California leisure suits, I would poke fun at how ridiculous they looked. Not any more. I recently discovered that the sale of those leisure suits (apparently a huge quantity of them) funded an innovative foundation that is reinventing Jewish philanthropy.
The Koret Israel Economic Development Funds , headed locally by former VISTA coordinator Carl Kaplan, pioneered utilizing a portion of the foundation’s endowment to fund a small business lending program, coupled with an innovative plan for micro lending.
In 2006, the pioneer of the micro credit concept Muhammed Yunus won the Nobel Peace Prize. This validated the concept. In brief, the aim of micro credit is to create self sufficiency. “Give a man a fish and he eats for one day. Teach that man to fish and he eats for a life time."
According to its website, the Koret Israel Economic Development Funds (KIEDF) has grown to become the state’s dominant private-sector, small-business development program. KIEDF’s focus on the small-business sector has successfully channeled more than $120 million in private philanthropy to job creation, bringing self-sufficiency and dignity to thousands of Israeli business owners and their employees.
The business lending program that Carl Kaplan established passed my rather tough inspection. Best of all, it bypasses our sometimes inefficient government and works directly with the private sector.
Since it only lends part of the money, the Koret foundation is able to leverage its endowment. It works in conjunction with Bank Hapoalim which provides its micro loans, while the majority of the fund's loans are through Bank Otzar Hachayal. Koret will also help applicants secure a small business loan from the government if they are eligible. So far Koret has facilitated 4,800 loans in total.
The first step for applicants for a loan is to prepare a business plan with the help of one of the financial consultants chosen by the Koret foundation. Since the business consultant wants repeat business from the Koret foundation, it is presumptive to expect that he will give a correct assessment of the future of the business. The loan applicant only pays the fee if he gets the loan. Then the cost is spread over five years.
Many of those asking for a loan balk at paying for a business plan. But the Koret foundation approach is the right one. Would you build a house without architect plans or set broken bones with no x ray? The numbers speak for themselves. The combined default rate of the more than 3500 loans initiated by the Koret foundation since 1994 is less than 2%. Most bankers do not allow themselves to dream of such low default rates.
Correctly, the Koret foundation stipulates that the loans can not be used for just any purpose. For example, they can not used to simply purchase real estate but they can be used to renovate the building for a restaurant or to buy trucks and supplies for a plumbing business.
The Koret foundation loan program is available for all sectors of the Israeli economy. Loans of up to $5000 are given to home based businesses.
The Bedouins and the Arab sectors are also included. The unique characteristics of their individual cultures are taken into consideration. Since most Bedouin women are forbidden from working outside the home, Kaplan recounted an example of a Bedouin woman who was lent money to buy a sheep to fatten for slaughter. She then sold the sheep for a profit and bought another.
Arab women were able to pool their micro loans from the Koret foundation to rent a field to grow crops. Another Arab woman was able to establish the first day care center for Arab toddles with the proceeds from her loan.
Incredibly, Carl Kaplan has been able to nudge Bank Hapoalim to do the right thing. Previously, all the banks in Israel preferred to lend to millionaires with the last name Dankner or Tshuva, and basically ignored the small business owner. The success and winning formula of the Koret program has convinced them not only to accept applications that come their way but even to advertise for more. Carl has also been able to loosen up endowment money that has been lying dormant for years.
As great a job as Carl Kaplan is doing, I challenge the Koret foundation to take their micro lending program one step further. The idea for the expansion literally came to me in the mail. As part of my year end bonus, one of the companies that I work for sent me a gift certificate to Kiva. www.kiva.org When I opened the envelope, I groaned. “Just what I need. More clothes.”
Imagine my surprise when I went to the Kiva website and saw that it is an internet micro loan center. With several other Kiva members, I lent $25 of my bonus gift certificate to a woman in Nigeria so that she could buy a sewing machine to expand her garment business. It would be great if Koret could join this program or start a similar one.
The Koret Foundation should be the first stop for any entrepreneur looking to expand his business or someone looking to start a new business.
Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG capital, from Tel Aviv. She is an independent commentator, and her views do not necessarily represent those of "Globes".
Published by Globes [online], Israel business news - www.globes.co.il - on January 8, 2008
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