Ogen Group, a non-profit organization that provides low-interest credit to small businesses and other non-profit organizations, has received a nod from Israel’s Finance Ministry to start giving out loans backed by state guarantees, as part of a push to help businesses struggling with the fallout of the coronavirus pandemic.
Becoming a beneficiary of the State Guarantee Fund will increase the supply of capital to small businesses and non-profit organizations in the market, and will enable Ogen to raise additional lending funds from philanthropy, impact investors, and institutional investors, the non-profit said on Sunday.
Ogen will issue government-backed loans at the Bank of Israel Prime rate, currently 1.6 percent, plus an additional 1.5%, meaning at a rate of 3.1% in total. All borrowers will pay the same consistent rate, the statement said, and the terms are similar to that offered by banks and other entities who are also distributing such government-backed funds.
Since its establishment at the end of March, the State Guarantee Fund for Small Businesses has approved loans to more than 45,000 businesses for a total of NIS 16.3 billion ($4.8 billion), the statement said. The funds are made available by banks and other approved entities, and now Ogen, with the government providing guarantees for 15% of overall losses on the total loans given out under the program. For high-risk businesses the government provides special guarantees of up to 60%.
“This is good news all round,” said David Angel, director of strategic partnerships at Ogen, by phone. Ogen is the first non-profit to get approval to distribute the government-guaranteed loans he said.
The non-profit can now raise funds from impact investors and institutional investors, with the knowledge that the government will be taking “a considerable portion of the risk of loans,” he said. “And, as we raise more capital, we can distribute more capital.”
Since its inception, the government loans program has been riddled with problems, with businesses saying “piggish” banks are turning them down because they are perceived as being too risky, while banks have struggled to cope with the huge surge in demand for the loans.
“Adding additional credit providers to the State Guarantee Fund stems from the need to provide a broad response to the needs of small and medium-sized businesses which have been damaged by the crisis,” said the Finance Ministry’s accountant general Roni Hizkiyahu in the statement. “Ogen’s inclusion increases the supply of credit dedicated to very small businesses and non-profit organizations. This is an important component in supporting the populations and people who are suffering the most from the crisis. This step builds on additional measures taken recently to ease and shorten the process for getting a loan, and I call on business to apply for loans to help get through this complicated period.”
Since its establishment in 1990, Ogen has made more than 65,000 loans and lent more than NIS 1.3 billion. During the coronavirus crisis, Ogen raised NIS 140 million from donors and impact investors to finance loans to small businesses, non-profit organizations and low-income households who have been hurt by the crisis.
“This challenging period has sparked large demands for credit and thousands of people who’ve been propelled into difficulty have turned to us for help,” said Sagi Balasha, the CEO of Ogen Group. “The fact that Ogen operates as a non-profit allows us to help the self-employed, the small businesses and non-profits who the banks refuse due to their own profitability.”
Other credit providers through the State Guarantee Fund support business with a turnover of NIS 100 million, Balasha said, while Ogen gives loans to those with a turnover of up to NIS 5 million, “and who are the principal sufferers from the coronavirus crisis.”
Ogen now manages NIS 400 million in lending capital and is seeking to raise an additional NIS 100 million to provide accessible and affordable capital to at-risk and under-served communities in Israel, the statement said.
Ogen is also seeking to become Israel’s first not-for-profit social bank, and has applied for a banking license from the Bank of Israel.