Eleven branches of Mercantile Discount Bank have begun operating a NIS 40 million fund providing loans to small businesses in Israel's Arab sector, the Finance and Industry, Trade and Labor Ministry said Wednesday. "The need to establish a fund for the Arab sector arose following complaints about obstacles encountered by the Arab sector in receiving assistance for small businesses, and based on examinations carried out by the [government] it became clear that the proportion of business owners from the Arab sector receiving loans was lower than their relative part of the population," said Acting Prime Minister Ehud Olmert, who is also Minister of Finance and Industry, Trade and Labor. Ala Agbaria, director of the Center for Jewish-Arab Economic Development's business unit, welcomed the news. "It is a good beginning. I hope that the [government] will deposit more money and increase the size of the fund, and that they discover that the [Arab] sector is capable of paying back the loans," said Agbaria, who is also director of the CJAED's own small business fund, established jointly with Koret Israel Economic Development Funds (KIEDF) and the Mercantile Discount Bank in August 2004. "The test is not in setting up the fund, but in how many businesses will receive loans." Agbaria expects the government fund, which will give up to NIS 500,000 per loan, would complement the CJAED's, which grants loans of up to NIS 150,000. Businesses would be able to receive from both, he said. The ministries noted that the Arab-specific fund joins the NIS 550m. general government fund for small businesses, founded in July 2003. Arab-Israeli businesses had been falling through the cracks of the general loan, as well as of the loans issued by the Industry, Trade and Labor Ministry's Investment Center. Banks operating the general small business loan - Bank Otzar Hahayal, Bank Leumi, and Mercantile Discount Bank - apparently were approving less loans submitted by Arab applicants (64% vs. 77% of loans submitted by Jewish-sector aplicants) due to a lack of familiarity "with the business environment in the Arab sector," Agbaria said. The ministry's Investment Center, for its part, was mandated to grant loans to businesses located in National Priority Area A industrial zones, he said, noting that, at present, Arab settlements located in National Priority Area A do not have industrial zones, and those boasting industrial zones are not located in National Priority Area A. "So the Arab sector was - at the outset - being excluded from the businesses eligible to approach [the Investment Center]," Agbaria said. Despite difficulties faced by the sector due to its image as "high risk" financially, CJAED loans actually have a higher repayment level than in the Israeli economy as a whole, due to the center's preliminary examinations of applicants and other forms of assistance offered, he said. Mercantile Discount Bank was chosen due to its high level of familiarity with Israel's Arab communities, in which it has more branches and a wider distribution than its closest rival, Arab Israeli Bank, which is concentrated in northern Israel.