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Social Finance Israel and Social Impact Bonds

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Ophir Samson

on 16 October 2013

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Transcript of Social Finance Israel and Social Impact Bonds

The Social Impact Bond
Part 3:
Social Impact Bond in Israel and abroad

Part 2:
The Social Impact Bond

Government Commisions
Foundations and Grants
Pay for service supply, not results

Early intervention is easier to cut in hard times

Shortage of funds
Significant lack of funding

Few have financial visibility > 3 months
Limited sustainability

Donors may have different priorities
How can we improve this?
Effective money:
Payment by results

Increase money to the social sector
Financial risk not with tax payer
Government only pays for social impact
Lack of upfront capital:
few service providers can afford to work now, get paid later
Which service provider was responible for the results?
Part 1:
Israel's economic and social crossroads

(socially and financially motivated)
Social Impact Bond
Social Finance Israel

Target population
Criminal offenders serving a sentence of less than 12 months
Example: Recidivism SIB.
Reducing re-offending in the community
Social-financial management company
Career training within the prison
Housing support for ex-offenders
Criminal rehabilitation services
Government body
Did the prevention work?
Ministry of justice:
Was recidivism reduced? If so, by how much?
The Social Impact Bond
Constructing Payment-by-results contracts with government
Within each social issue: Mapping of the non-profit industry
Economic modeling of SiBs' financial returns and benefits to governments, reporting of results and investor relations
Analysis of Israel's most critical
social issues
Social Finance Israel (SFI) is a not-for-profit organization working to connect the social sector and its entrepreneurs with the capital markets, opening up new pools of capital to finance effective not-for-profit organizations to solve social challenges effectively .

We structure and manage innovative impact investment securities and funds that generate both beneficial social impact and financial return.
Social impact of specific service is measurable

Clear link to government cost-saving from the MoJ.
Highly allgined: recidivism SIB
Government contracts:
payment by results
Greater focus on third sector
Highly localised services: quality care
Increased diversity of provision, more choice and competition
Many are too small to bid for government contracts
Funding difficulties:
Lack of financing makes long-term projects difficult
Financial innovation to solve critical social issues in Israel.

Copyright © Social Finance Israel
Tel Aviv, Israel, 2013

Provider of training and employment
A snapshot of the market
Israel has seen strong economic growth
and at a healthy growth rate....
the cost of living is high....
The Israeli Social Sector
32,000 registered non-profit organisations (15,000 active)
1,700 new organisations per year
98 Billion NIS trading activity
Produce 5.9% of Israel's GDP
16% of Israel's private and public goods
Employ 369,000 people, or 11% of Israel's workforce (excluding volunteers).
Gini coefficient = 39% (69th in the world)
19% below the poverty line (highly distributed due to high Arab-Israeli and Haredi unemployment levels).
39th largest economy in the world, as of 2010.
World's highest number of Nobel prizes, academic publications, university degrees, startups, museums, venture capital investment, per capita.
Israeli scientific institutions ranked third in the world.
Third highest entrepreneurship rate amongst women in the world.
More NASDAQ listed companies than all of Europe, India, China and Japan combined.
The TA-25 Index has seen higher returns over the last ten years than any other developed country.
8th happiest country in the world!
The Israeli Economy
Largely unaffected by the financial crash of 2008.
Member of the OECD since 2010.
Large gas finds will increase GDP by roughly 3%.
1.5m people in Israel are poor, with one in three children living in poverty - one of the highest rates in the developed world.
Ranked 5th, out of the 34 OECD countries, for unequal income distribution.
75% working population earning less than 1/3 of high-tech salaries.
Over 50% unemployment in Arab-Israeli population (currently 20.5% of total Israeli population).
Over 67% unemployment among Haredi communities (currently 12% of total Israeli population)
Nearly 800,000 Israelis either have, or are on the way to getting, type 2 diabetes.
Unequal economics
Government Commissioning
Foundations and Grants
Charitable Donations
Pay for supply, not results

Early intervention easy to cut

Shortage of funds
Significant lack of funding

Donors may have different priorities
Under-capitalised market: In the UK
Market size: £95bn
800,000 Full time employees
75% less than 3 months financial visibility
Government Contracts
Foundations and grants
3 approaches
But they have a significant shortage of capital...
The role of Social Finance Israel
Construction of intervention programs to tackle social issue, using current non-profits
performance management and evaluation of nonprofit organizations
The innovation of Social Impact Bonds
Social-financial products present a new "branch" of the financial industry
Fundamentally change the way non-profits are funded
Financial Industry
Social Sector
and Public Sector
Payment by results: tax-payer money not wasted on ineffective social services.
Help those in society who need it most
Our mission:
SFI, SF USA and SF UK are separate entities with a shared mission and shared international governance. We work closely together but are independently funded and managed.

SFI: Launched in March 2013. Preliminary research and market readiness analysis conducted by The Portland Trust, Israel, under the guidance of Sir Ronald Cohen who has cofounded both SFUK and SF USA.
SF USA: Launched operations in Boston in January 2011, staff of 15
SF UK: Founded in 2007, staff of 41
Initial focus is on the Social Impact Bond (SIB)
Social Impact Bonds around the world

First £5m SiB launched in the UK in September 2010 focusing on prisoner rehabilitation. Second £3.1SiB launched to prevent need of foster care.
15 more SiBs in development, as well as 2 SiBs in development for Africa

Goldman Sachs invested $9.6m in a SiB to reduce juvenile detention in New York City, as well as another $7m to finance early education programs.
Up to ten more SiBs in development
Funding for SiBs presented in Obama’s 2012 and 2013 budget


Government of New South Wales announced three SIB projects
Focus on prisoner recidivism and out-of-home care

Other projects:
Canada, Ireland, Scotland, Spain and Germany are exploring SiB development.

Bond issuance:
SFI will issue a $5-7m SiB to give education, vocational training and career placement services to Haredim in Israel. Currently, only 45% of the country’s male Haredim are employed.

SFI allocates capital amongst service providers
SFI selects two or three not-for-profit organizations to provide training that, ultimately, increases employment rates among Haredim.
SFI works with the service provider to measure and improve its performance.

SFI quantifies financial benefit to government:
Each employed Haredi pays a variety of tax contributions, increases the national GDP and does not receive expensive subsidies.
This provides financial bottom-line saving to government is quantified on a basis of a contract which SFI constructs with the government.

SFI returns part of this benefit to investors
If no significant increase of employment rates has been achieved, the initial investment is lost.
If the increase is significant then SFI returns part of the cost saving to investor, which covers investment plus a rate of return which is dependent on the success of the service provider.

Example: A Social Impact Bond to increase employment rates amongst Israel's ultra-orthodox community
Due diligence:
selecting the best-performing nonprofit service providers to implement intervention programs.
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