Under the agreement Leumi, Israel's second-largest bank, could provide finance of $100 million to technology companies in Israel with the support of a $50 million guarantee provided by the EIF and backed under Horizon 2020, the EU Framework Programme for Research and Innovation.

This is the first such EIF agreement in Israel, enabling LeumiTech, Leumi's high-tech banking arm, to offer tech companies with up to 500 employees financing at favourable conditions. Leumi must complete the loans over two years.

"We believe this could be the first in a series of collaborations," said Pier Luigi Gilibert, chief executive of the EIF, noting that SMEs are the backbone of the economy.

The guarantee programme allows banks and the EIF to share the risk, he added.

He said the EIF would be open to requests from other Israeli banks. It has done similar programmes in Turkey, the Balkans and some 17 EU countries and hopes to cover the entire EU by the end of the year.

Bank Leumi CEO Rakefet Russak-Aminoach said SMEs are a focus of the bank as it sees strong growth in coming years, especially in high tech.

Israel's high-tech sector is a key economic growth driver, accounting for about 12.5 percent of gross domestic product.

Leumi expects to use the entire amount provided by the EIF in the next two years and then request more.

The EIF, which is part of the European Investment Bank, had total commitments to private equity funds of over 8.8 billion euros ($9.9 billion) at the end of 2014 and its guarantees loan portfolio totalled over 5.6 billion euros.

(Reporting by Tova Cohen)