Small and medium-sized enterprises (SMEs) are consistently shown to be crucial for economic growth and job creation. However, SMEs worldwide still encounter difficulties in access to credit. Shortage of credit can lead to overall reductions in investment in SMEs, and generally prevent them from thriving. In Israel, many reports have noted that the absence of competition in the banking sector and lack of non-bank credit solutions is one of the major contributors to the situation of high funding costs and low access to credit in which SMEs find themselves.

The purpose of this research is to examine how the Israeli government, via a targeted support program, can broaden the credit supply to SMEs and promote competition in financial services. In order to expand the supply of credit solutions for SMEs, this research suggests a government support program in the non-bank credit market in order to encourage alternative and innovative finance platforms. These platforms provide credit using new technologies, most prominently crowdfunding and peer to peer (P2P) loans. Because these solutions are efficient and effective at a lower scale, small businesses can benefit from their expansion.

There are a few options for a support program that would facilitate a broadening of the credit supply offered by these platforms:

• Government guarantee
• Budgetary support
• Other options, including: guarantees for raising lower cost capital, guarantees given to institutional investors investing in these platforms, public campaigns, and regulatory shifts that force sharing of credit information between banks and the non-bank credit platforms.

The purpose of the support programs is to expand the financial tools for small businesses and to reduce their costs. The support program should lead to improve access to credit, increase credit supply, expand non-banking credit market, and, more generally, develop an eco-system in the area of credit solutions for SMEs. We believe that that the implementation of these programs can support SMEs in Israel and enhance economic growth and job creation.106-en-s-w-ori-dvir