One good idea, one part community, a pinch of organization, and a spoonful money…mix well and serve


One compelling rule in economic development is that access to capital is essential. Without it, you can have a good idea, but nothing happens.  Without it, you can have a desperate need that goes unanswered.

A 2014 Milken Innovations Lab funded by Citi Foundation reported while 96 percent of all businesses in Israel are small business and employ 60 percent of the work force, they receive only 20 percent of bank credit.  The banks in Israel are highly concentrated with only six traditional full-service banks operating and three have about 65 percent of the market.  In addition, the Lab found limited access to affordable credit to populations in need, lacking competitive services geared to lower-income populations, and abuse of these populations by unregulated grey market lenders.

In addition to financial exclusion at the teller window, the dramatic rise in housing prices, almost doubling the average cost in 10 years, has put more of a financial crunch than ever on Israel’s lower and middle classes.

With the roadmap from the Lab, and with the help of Milken Fellows based in the Bank of Israel, and other ministries involved with the targeted communities, we laid out a variety of new models, including translating the success of community development financial institutions from the US and European market into the Israeli market.  In addition to regulatory relief on the capital requirements, information infrastructure technologies, and ownership and government structures, the Bank of Israel has since welcomed the creation of new community banks.

With the continuing support of Citi Foundation, Israel’s Milken Innovation Center has been working with the Israel Free Loan Association, primarily a donor-supported non-profit lender with a substantial and successful track record, to become a non-profit bank, providing both deposit and credit services.  IFLA has loaned over $270 million in over 60,000 loans over the last 27 years.  This new bank, the first new bank in Israel in 45 years, will raise “equity” in the form of subordinated impact loans from impact investors and eventually take time and demand deposits from the community.  In turn, the new social bank will provide second mortgages for qualified first-time home buyers, loans to small businesses, personal loans, and even bridge loans to non-profits (waiting for their grant receivables to arrive).  The social bank will also provide financial education, low costs and fees, and promote community development and participation.

The new social bank will provide a financial and social return to impact investors, leveraging its capital by almost 12 times, provide interest on deposits, allow growth and efficient scaling, and use the existing regulatory framework (and even the same regulators).

Most importantly, the new social bank offers a new path for new money, a scalable solution that addresses a market opportunity, an impact on a population in need, and is financial viable.  The new social bank is undergoing regulatory review, raising impact investment capital, and hopes to fully operational by mid-2019.

At its core, this market-based financial innovation enables community development by opening access to capital where and how it is most needed.

Steven Zecher
Steven Zecher
Steven Zecher is the project director the Milken Innovation Center at the Jerusalem Institute for Policy Research. His work focuses on financing strategies with an emphasis on public-private-philanthropic capital structures. Zecher has extensive experience in urban and regional development policy,...
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