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How Impact Investing Can Help Israel

Milken Institute Report Identifies Innovative Ways for Israel to Bolster Social Sector

LOS ANGELES, CA -- (Marketwire) -- 12/09/12 -- Israel's social sector -- the public and private agencies, institutions, and businesses that address the country's social and economic development -- plays a vital part in its economy by identifying and dispensing crucial services. But even though such spending is among the highest in the developed world -- 5.6 percent of GDP -- the country is behind in employing the relatively new tool of social or "impact" investing, which leads to social good while delivering a financial return to companies.

A new report from the Milken Institute, "Building a Social Capital Market in Israel," explores ways that impact investing can help the nation's social sector evolve.

"We identified a large gap in the marketplace, which is an important step toward building a complete social investing system in Israel," said Glenn Yago, senior director at the Milken Institute and founder of its Financial Innovations Labs®. "We've captured the best advice of top experts in impact investing, and we believe the time is right for bringing new approaches to Israel, where there's great receptivity to innovation."

The report recommends ways to overcome barriers, including legal and regulatory restrictions, revenue challenges, and access to capital. It details specific approaches for scaling up current financing programs, replicating best practices from other nations, establishing a social investment fund, and creating policy tools to provide incentives for social investment in Israel.

Among the tools that can be used to attract capital to Israel's social investment market are increasing limits on tax deductions, allowing tax credits to be carried forward and made transferable, and instituting tax-exempt financing.

The report also suggests a number of policy changes:

  • Allow the creation of "benefit corporations" that represent a hybrid of non-profit and profit-making enterprises;
  • Allow the creation of philanthropic funds as a way of spurring the growth of available capital; and
  • Create a classification for social enterprise bonds, similar to U.S. 501(c)(3) bonds, to raise longer-term, lower-cost funds in the capital markets.

"Building a Social Capital Market in Israel" emerged from a Milken Institute Financial Innovations Lab held in May where the National Economic Council and leaders in Israeli, U.S., and U.K. social investing markets met to help prepare a roadmap for a social investing framework.

Yago, together with other financial, business and technology innovators, will participate today in the panel, "Impact Investing: Israel as a Launching Pad for Social Investment," at the Globes Israel Business Conference at the David Intercontinental Hotel in Tel Aviv. Moderated by Milken Institute Chief Operating Officer Paul Irving, the session will answer questions about combining public-private and philanthropic investors, the particular challenges facing the formulation of investment targets, barriers to investment, and mobilizing financial institutions through capital markets with social impact bonds to spur a new wave of social investment activity.

Impact investing is an approach to finance that extends the definition of returns beyond the merely financial to include social benefits, filling a gap between public and private sources of financing and funding, especially where private companies do not (or cannot) provide services competitively. Impact investors believe it's possible to solve social or environmental challenges while generating sustainable financial and social returns.

"Our report outlines strategies to open access to conventional and new capital markets and introduce novel organizational mechanisms that allow partnerships to form between governments, NGOs, and private enterprise," said Yago. "At the Globes conference, we will discuss using philanthropic and government resources to leverage 'smart' money into the social investing economy, using good investment practices, strong business models, and compensation for talent and performance."

Copies of "Building a Social Capital Market in Israel" are available for download at http://www.milkeninstitute.org/publications/publications.taf?function=detail&ID=38801383&cat=finlab

About the Milken Institute
A nonprofit, nonpartisan think tank, the Milken Institute believes in the power of capital markets to solve urgent social and economic challenges. Its mission is to improve lives around the world by advancing innovative economic and policy solutions that create jobs, widen access to capital and enhance health.

www.milkeninstitute.org
@milkeninstitute

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