Loan Fund Program to Restructure Excessive Debt among Families Living in Poverty
The State of Israel stands out among Western countries due to its high rate of poverty and social inequality. This reality has become more prominent over the years. A report of Israel’s National Insurance Institute (2017) shows that in 2016, 19.1% of Israeli families live in poverty.
In 2015, the Ministry of Social Affairs and Social Services initiated the Noshmim lervakha program to improve the situation of families living in poverty and excluded from the normal financial sector. Through systematic and intensive intervention, the program provides families the tools they need to improve their financial situation. Despite the positive change in families’ situations in various areas, such as employment integration, improvement in income, and realizing rights; the data shows that families continue to face the most significant difficulties in addressing outstanding financial obligations. Large and growing household debt without the ability to reach an arrangement with the various creditors, hurts families’ ability to improve their economic situation and leave the poverty cycle, even when the family income grows.
Around the world, countries are deploying new policies to address excessive debt
In response to excessive debt, countries have deployed new polices with the following components:
- Improved credit accessibility to excluded populations such as loans from financial non-profit organizations (credit unions, community loan funds) and government loan funds
- Building financial capabilities through a holistic approach to improve the family’s financial literacy and access to affordable credit. Specific interventions include financial counseling, education, and the use of behavioral economics tools to improve financial efficiency.
- Establish a loan fund as a component of Noshmim lervakha to promote accessibility to credit.
- Establish a debt-counseling service as a component of Noshmim lervakha to help families building a plan to reduce their debt and negotiate new agreements with outstanding creditors.
- Provide continual family economic and social support in order to strengthen the family’s financial abilities.
- Create savings incentives with a savings grants that is given to the families who finish the repayments of the loan.
- Use behavioral economics tools, such as loan repayment reminders, to increase the program’s impact.
- Continue investment in program staff and training.
- Deploy a modern computerized system as a tool to streamline the family intervention process in all matters related to economic conduct and debt.
- Build a follow-up program for “alumni” to maintain the impact on families over time.