Yad Hanadiv, the Rothschild Foundation, has released an updated version of the booklet A Social Capital Market for Israel.
from the Summary:
The nurturing of social investment in Israel would involve channeling more money to address social problems by improving the efficiency of financing by existing public and philanthropic resources, and by attracting new wealth to investments that offer twofold value: economic and social. We have learned from overseas models that the development of the field has potential to produce a quantum leap in contending with complex socio-economic challenges by reinforcing the financial strength of the main social services providers, and by making a positive impact on innovation and on the commitment to socio-economic outcomes and gains.
In recent decades, in the framework of government policy in Israel, work in many fields of social welfare, education and health has been transferred from the hands of the State – primarily to the hands of Third Sector organisations. In addition, social entrepreneurs who have identified gaps in responding to acute societal needs have taken upon themselves the mission of developing and operating new and diverse social services, such as assistance for special needs populations, women and at-risk youth, and in the fight against poverty and unemployment, among others.
In general, these organisations operate on a non-profit basis and naturally are unable to collect payment for the services they provide from the ‘consumers’ of these services. Their income – that is, the sources of financing for their activity – comes primarily from funding by the government and municipalities, which purchase services from them and support them in the framework of various support budgets, as well as from contributions and philanthropy (primarily from Diaspora Jewry).
Despite the fact that the efforts of social entrepreneurs and Third Sector organisations to address social problems generate clear socio-economic value in many fields, the prevailing approach to financing these efforts and the activity of non-profit organisations does not take these values into account. The result is that the social organisations are usually under-financed and often suffer from a lack of financial resources required for providing or developing social services – whether due to cutbacks in government and municipal budgets, organisational-managerial difficulties or the inability to rely on philanthropic funds (for example, because of global economic crises). Existing resources are also not always utilized efficiently, partly because of the forms of contracting with the government and the multiplicity of funding entities, with their various allocation mechanisms. In addition, many regulatory restrictions are imposed on the organisations, including limitations on developing sources of income from busi- ness activity that serves their social objectives, and this prevents them from developing independent sources of revenue. Due to this constellation of circumstances, the social organisations often experience economic and financial difficulties, and lack adequate sources for their ongoing needs let along the needs of their development and growth.
The social organisations are indeed non-profit organisations, but their economic operation shares similar characteristics to those of a business that is required to provide services or products to its consum- ers. In Israel, however, these organisations contend with many more restrictions than those of a regular business, particularly in light of their special structure of revenues that creates the need for appropriate financing solutions. The approach proposed in this report is to learn from the methods developed in the capital market, which provide a solution for the financing needs of businesses, and to act accord- ingly to develop the social capital market in Israel.
The complete report is available here for download.
For our readers in Israel, an in-depth article on the subject can be found in today’s TheMarker.