Finding New Money to Fight Poverty in Israel

Posted by on Aug 31, 2014 in News |  

In July 2014, TheMarker, Israel’s daily economic newspaper published an article written by IVN’s Jackie Goren. The following is a translation of the article. To read the original in Hebrew, click here.
Recently the Allalouf Committee Report was published, according to which Israel currently has one of the highest rates of poverty among the OECD member countries. The Committee proposed a series of measures to reduce the poverty rate by 40% by 2024, but the billion shekel question is, where do we get the money from?
Without detracting from the fact that dealing with poverty is the state’s responsibility – it is possible to significantly increase the size of cake and bring in more money that can be invested in solving the problems that are the cause of the poverty, referred to in the report, such as affordable housing, sheltered housing and employment for disadvantaged populations (people with special needs, Haredim, Bedouin and Arab women, etc.). We do not need to reinvent the wheel. We already did this when we created the hi-tech sector in the 90’s, using the smart Yozma (meaning: initiative) concept. Yozma was a government initiative in 1993 offering attractive tax incentives to foreign venture-capital investments in Israel and promising to double any investment with funds from the government. This motivated local and foreign investors to invest in the new sector, then considered risky.
This model was copied by an investment fund established in Britain at the outset of the 21st century, when the poverty levels became severe but there were insufficient funds to allocate to fight the problem. The fund was established in 2002 with an investment of 50 million pounds, of which 20 million was invested by the state. The fund focused on social business, primarily in the areas of employment, affordable housing and social bonds. Today, 12 years later, the fund has become three funds that together manage nearly half a billion pounds. Today, much of the money comes from institutional and businesses investors who firmly believe that investing in social enterprises generates both social and financial return. Israel of 2014 is Britain in 2002. There are those who are trying to solve the problem of poverty in Israel, especially in terms of employment and affordable housing.
One example is the Israel Venture Network’s Tandem Fund, investing in around 25 social businesses that deal mainly in the field employment of disadvantaged populations. Such a business includes Ravtech, a sub-contracting software house that trains and employs over 30 ultra-Orthodox yeshiva students, allowing them to study Torah in the morning and work in the afternoons. We believe that businesses like Ravtech can employ thousands of Haredim over time, but first they have to prove that they can sustain themselves as a business and not just generate social impact. To date, most of our investors are philanthropists, and it is too early to show the financial return on the investments over a three-year investment period.
Government involvement in acquiring “parked funds”, i.e. National Lottery funds and/or the Administrator General, would provide a safety net for business investors and would increase the amount of money to be allocated to such funds. If in Israel, as in Britain, we can prove business viability in the near future, in less than five years we could raise hundreds of millions of shekels towards reducing poverty in Israel, and this without increasing our tax payments. And not get confused, the new money does not release the state from its responsibility to reduce poverty on all levels, but only those places where you can solve the problem while generating social and financial return.