Israel launches first ever social impact bond in field of higher education

The project will be managed by SFI and operated by the Alumah Association.

November 4, 2015 20:03
2 minute read.

Haifa University. (photo credit: Wikimedia Commons)

Social Finance Israel and the Rothschild Caesarea Foundation announced the launch on Wednesday of a new social impact bond, the first of its kind in Israel in the field of higher education.

The bond aims to reduce the drop-out rate and extend the studies of computer science students in Israel, in collaboration with the Tel Aviv-Jaffa Academic College and University of Haifa.

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The concept of social impact bonds, a venture launched in the UK in 2010, is to use investment money to fund and treat social issues while also generating some level of financial return.

“This represents a paradigm shift from old school philanthropy to impact investment,” Social Finance Israel CEO Yaron Neudorfer told The Jerusalem Post on Wednesday.

“You use investment money to fund and treat social issues and if the results reach a certain goal or benchmark then the investors are paid back for their investment and a modest rate of return,” Neudorfer said.

Drop-out rates from engineering, computer science and exact science faculties can run as high as 40 percent in some Israeli student groups, losing academic institutions a lot of revenue, including tuition and appropriations from Israel’s Planning and Budgeting Committee.

Should the social impact initiative reduce the dropout rate, then the academic institutions will benefit from added revenue, out of which the money will be rebated to investors, Neudorfer said.

Social Finance Israel will manage the project and Alumah Association will run its operations using its specialties in educational activity for mentoring and helping young adults to acquire life skills and integrate them in educational and employment circles.

The cost of the eight-year project is estimated at NIS 8 million, and to be funded by the Rothschild Caesarea Foundation, Bank Leumi and the Beyond Impact Investment Company.

During this time Alumah will accompany and provide support for some 600 students throughout their studies through an individually tailored program based on academic, economic and personal considerations.

“The social impact bond is based on rigorous measurement of results,” he said.

“It is a high risk investment because the university pays only in the case of successful results – this is the first financial instrument to tie social performance with financial returns.”

According to Neudorfer, however, the opportunity presents a “quadruple win” – first and foremost for students completing their studies, for universities able to increase their revenue base, for investors who may not only receive a return on their investment but have also helped to better society, and finally to the Israeli economy.

In fact this innovative method of investing is gaining traction around the world. Today there are some 50 social impact bonds in education, social welfare and healthcare, most of them in the UK and the US.

“More and more investors want to invest not only from cold financial considerations, but to do some good in the world, and you see this all along the spectrum,” Neudorfer said.

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