Social Finance Israel


Israel’s first Social Impact Bond Gets Underway

Nov. 5, 2015

 Social Finance Israel and the Rothschild Caesarea Foundation, in collaboration with the Haifa University and Tel Aviv-Jaffa Academic College, announced the launch of a social impact bond today, which will support reducing the drop-out rate and protraction of studies among computer science students. This will be Israel’s first social impact bond - a unique and innovative model for financing social investments in Israel. The issue of drop-out in higher education institutes is a global phenomenon; it has been on the rise in recent decades and reaches nearly 30% in OECD countries. Israel has a similar drop-out rate, although among certain student groups within the faculties of engineering, computer sciences and exact sciences, the drop-out rate is as high as 40%.

In addition to the students being negatively impacted, drop-out rates also bear negative impact on the academic institutions which are financially tied to the number of students; this impact becomes more acute the higher the drop-out rate. Revenues of the academic institutions diminish as students drop out, losing the tuition paid by the students, as well as non-payment of appropriations from the Israel’s Planning and Budgeting Committee, to which the institution is entitled if students successfully graduate. 

To test the effectiveness of the intervention program for reducing the drop-out rate from academic studies, the Rothschild Caesarea Foundation has enacted the intervention program at the Academic College Tel Aviv-Yafo over the last two years. The findings from the pilot have exhibited a promising level of success, where 83% of the graduates of the intervention program successfully completed their first academic year and went on to their second year – in contrast to the control group of which only 16% completed their academic degree!

The project for minimizing the student drop-out rate from the computer science faculties will be managed by SFI and operated by the Aluma Association, which specializes in educational activity, mentoring and helping young adults to acquire life skills and integrate them in educational and employment circles. Over the course of the 8-year-long project, the Aluma will accompany some 600 students. The project includes innovative accompaniment and support of students throughout their studies, individually tailored to each student based on academic, economic and personal considerations.

Should this initiative be successful in reducing the drop-out rate by more than 35%, then the academic institutions will benefit from added revenue, out of which the money will be rebated to the investors. The project cost – approximately NIS 8 million - is borne by the Rothschild Caesarea Foundation, Bank Leumi and the Beyond Impact Investment Company. The Rothschild Caesarea Foundation played an essential role in project conception, capitalizing on its rich experience in higher education, as well as on a drop-out prevention model previously developed with the Academic College Tel Aviv-Yafo.  

Social Finance Israel CEO Yaron Neudorfer believes that social bonds have the potential to substantially change the financing and management of social projects in Israel. “Impact investing in higher education, which is managed through attaining measurable results, is one of the keys for a more just and prosperous Israeli society. I am convinced that reducing the drop-out rates from higher education in the high-demand majors, and thereby addressing an acute problem afflicting Israel’s high-tech sector, will contribute directly toward reducing social inequalities in Israeli society and spur the growth of Israel’s economy.” says Neudorfer. “We are leading a paradigm shift and a switch to the concept of social investments, in an effort to mobilize the private sector in favor of increased engagement in priority social issues through tools they recognize from the investment world. These tools are based on the identification of specific social goals, close monitoring of the results and flexible project management based on an ongoing analysis of the social performance. We believe that this approach, which is proving successful elsewhere around the world, will be essential in boosting the magnitude of investment in social issues in Israel. There is no doubt in my mind that the coming years will see more and more social impact bonds being issued in Israel on a variety of issues, and that these will draw economic planning, new capital and advanced management tools toward the social arena in Israel.”

Director of philanthropy at the Rothschild Caesarea Foundation, Elli Booch: “Dropping-out of higher education is a phenomenon in Israel affecting about one-third of students, those who begin their academic studies but will not earn undergraduate degree. This issue is all the more acute among marginalized and periphery populations and is a contributing factor to the widening of social inequalities. This is a particularly impactful social finance project, as drop-outs are not only without a degree, but also have difficultly entering the job market. I have no doubt that social impact investments will bring much needed new resources to social issues and revolutionize the traditional methods of financing such projects. I am proud of the partnership with SFI in launching Israel’s first social bond, and the world’s first social bond dedicated to higher education”

About Social Impact Bonds:

A social impact bond is a financial tool based on the principle of financially rewarding positive social outcomes - funds raised from social investors finance programs which seek to address social problems. The desired social outcomes are predefined and the successful achievement of these outcomes is closely monitored. If, and only if, the desired social impact is achieved, are the investors paid back for their investment. The first social impact bond was issued in England in 2010 by Social Finance UK, a sister company of Social Finance Israel, in an attempt to address the high rates of recidivism among past offenders. The effectiveness of the social impact bonds model has been proven and there are now over 40 social impact bonds issued in 8 countries over a broad range of social issues.

About SFI:

Social Finance Israel is a financial intermediary that aims to provide both social and financial returns to investors. Operating as a social investment house - the first of its kind in Israel - promoting the flow of financing in favor of solving a variety of social problems through social impact bonds and impact investing products. SFI assists social investors and philanthropic foundations that are interested in accomplishing measurable social impact and in achieving social as well as financial yields. It is a sister company to Social Finance UK and Social Finance US, leaders in the field of social investments worldwide. Sir Ronald Cohen heads the company’s board of directors and Yaron Neudorfer serves as CEO.

About the Rothschild Caesarea Foundation:

The Rothschild Caesarea Foundation works to create a better Israeli society, by supporting higher education and promoting social engagement. As part of the global network of the Edmond de Rothschild Foundations, our mission is to promote social empowerment and a collaborative society. It is rooted in a century-long tradition of giving, founded on humanism, inclusion and the search for excellence.

Since its inception, the Rothschild Caesarea Foundation has established and led innovative programs throughout the country. Tens of thousands of youths and children, Jewish and Arab, religious and secular, native-born Israelis and new immigrants, have gained the advantages of higher education through the range of programs funded by the Foundation.

About the Aluma Association:

Aluma, which was founded in 1983, works for the consolidation of a robust, growing society in Israel and believes that social mobility for specific groups within Israeli society can be accomplished by advancing their acquisition of life skills, by striving for exceptionalism and by their integration into circles of meaningful service, education and employment. This will also bolster the health of Israeli society at large, as it is composed of each and every one of its individuals. Each year Aluma helps some 20,000 men and women, aged 16 to 30, of all social backgrounds, by mentoring these young adults at life’s critical junctures: school age into military or civilian service, and on to higher education and entry into gainful employment.