Arab businesses, Israeli banks: A test of coexistence

If the i’s aren’t dotted and t’s crossed, businesses won’t get needed funds, says a veteran business consultant

Chief Scientist Avi Hasson speaks at a Nazareth high-tech event (Photo credit: Courtesy)
Chief Scientist Avi Hasson speaks at a Nazareth high-tech event (Photo credit: Courtesy)

Israeli Arab businessmen should focus on making the details of their proposals meet Western standards, an Israeli business consultant says.

If there’s anything holding back Israeli Arab entrepreneurs from getting ahead, it’s culture, not racism, according to Zev Hershkowitz, CEO of Nihul Neto, an Israeli business consulting firm. “Banks won’t lend to businesses that don’t conform to the strictures and structures of fiscal reporting, keeping proper sets of books, and so on. Traditionally, many businesses in the Arab sector have not maintained these standards. In addition, Arab culture in Israel includes features that make bankers think twice.”

Hershkowitz spoke at a conference on Israeli Arab entrepreneurship sponsored by the Economy Ministry’s chief scientist’s office held Tuesday in Nazareth. At the conference, Chief Scientist Avi Hasson announced government programs to fund Israeli Arab businesses. Hasson’s office plans to provide up to 85 percent of the budget for research projects, especially in the tech sector. Combined with existing programs for Israeli Arab businesses, the state is set to provide entrepreneurs with many resources, Hasson said.

“We need you in the Israeli economy,” Hasson told an audience of about 500, many of them Israeli Arab business owners. “We have a lot of programs and we are willing to listen, to adjust them to your needs. We may do a bad job of publicizing them, but these programs are here. Use them.”

The State Loan Guarantee Fund, run by Israel’s Small Businesses Administration, is one such program. The fund guarantees up to 80% of loans taken out at private banks by qualified businesses. The guarantees are designed to ensure access to funds even to businesses that are not credit-worthy.

Even with these guarantees, some banks are reluctant to give loans to Israeli Arab-owned businesses, Hershkowitz said. “I had one banker telling me that she wouldn’t even give loans to Israeli Arabs who were willing to put up their own homes as collateral for a loan. ‘What happens if I try to foreclose on a home in a village for non-payment of a loan, and the village residents band together to keep me out?’ she told me. She believes there is no way she could collect even on the collateral they are willing to provide because her agent will be run out of town by the extended family and, in many cases, she is probably right.”

Israeli banks didn’t invent the world banking system, where success is based on conforming to international standards and requiring customers to do the same. “That means coming up with a business plan, transparent books, tax forms, and that is what we do for our clients,” said Hershkowitz.

Nihul Neto, headquartered in Petah Tikva, is not the largest business consulting firm in Israel, but it has worked with many Israeli Arabs, helping to Westernize their operations. The firm works with businesses to help them qualify for loans, meet investors and modernize their business practices. “Many of the people running these businesses are smart and savvy, but, until they adopt Western standards, they are only going to go so far,” said Yaniv Cohen, Nihul Neto’s credit director.

“Very often business owners tell us they are doing very well in their villages or towns, but they have no way of expanding because they can’t get loans. They can’t break through that glass ceiling, not because they are not competent, but because they don’t have properly written business plans, directives, insurance and other things banks look for before granting loans. We help them develop themselves and reshape their businesses into the standard mold,” Cohen said.

If businesses with “Eastern” methods and practices want to partake of the West’s financial bounty, they need to update themselves, Hershkowitz said. In the Arab sector, with its traditional way of doing things, that is often a great challenge. “One of the things we do is help convince businesses that they need someone who knows the law and the principles of accounting and banking as chief financial officer.

“Many businesses in the Arab sector are family affairs, with the father or grandfather, of course, in charge of the money. But he is generally not educated in Western mores, and is not the best person in the family to be doing that job. For a patriarch to give up control of the money is a very difficult thing to do, but often there is no choice,” Hershkowitz said. The fact that family is the primary employment pool for many of these businesses means that along with work issues, Hershkowitz has to deal with family politics. “Often we are as much psychologists and social workers as we are business managers, because we have to help work out family feuds on who is going to be in charge of what.”

The cultural gap is wide, but things are changing. “Especially in recent years, we have gotten a lot of inquiries for assistance in Westernizing businesses in the Arab sector. They realize that the world is changing, and they are willing to make compromises on how businesses are run that would have been unthinkable just ten years ago,” said Hershkowitz.

For its part, the banking establishment will have to get used to doing business with a sector that always viewed itself, and was viewed as, the “other.” Just as the government is determined to integrate Israeli Arabs into the economy, so the private sector has to as well. “We really don’t have a choice,” Hershkowitz said. “The ‘legacy’ populations of Europeans and Mizrachi Jews have realized themselves in Israel’s economy, and there is not much further they can go. But among Arabs, and Haredi Israelis as well, there is much progress that needs to be made. If we expect the economy to continue to grow, we have no choice but to welcome these groups into modern Israel, as they themselves modernize their approach.”

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