Israeli non-profit plans unique social bank, expanding credit access

For low-income households and small businesses, loans can provide a valuable financial lifeline when faced with unexpected expenses or simply struggling to make ends meet. Qualifying for assistance, however, can simply prove unattainable for many applicants. Providing affordable credit to disadvantaged segments of the Israeli public has been the decades-long mission of Ogen, the nonprofit previously known as the Israel Free Loan Association. Founded by the late Prof. Eliezer Jaffe in 1990 following waves of immigration from the former Soviet Union and Ethiopia, the Jerusalem-based organization has provided more than 62,500 interest-free loans to date – totaling more than $300 million. Seeking to close social gaps by ensuring full access to economic opportunity, Ogen is now embarking on an ambitious and unique project – establishing a full-service, nonprofit bank, licensed by the Bank of Israel (BOI). “We talk a lot about the Start-Up Nation but it represents just 8% of the workforce, while low deciles are marginalized geographically and economically, where they have less opportunities to build their financial lives,” Ogen CEO Sagi Balasha told The Jerusalem Post. “If you are a high-income individual, in the highest two or three deciles, you can go to any bank and very quickly receive a loan. A low-income person finds it very hard to get any loan – a personal or business loan.” Others struggling to gain access to credit, Balasha added, include small- and medium-sized businesses – which amount to some 97% of the nation's companies and serve as Israel's major growth engine – and first-time home-buyers unable to reach the minimum mortgage down-payment of 25% set by the Bank of Israel. Ogen CEO Sagi Balasha (L) and Director of Strategic Partnerships David Angel (Credit: PR) Ogen currently offers two lending platforms: the Israel Free Loan Fund, which has assisted low-income families and small businesses to the tune of $300m. to date, and the Israel Social Loan Fund, an impact investment fund which serves as the forerunner to the organization's planned nonprofit bank. The Israel Social Loan Fund was launched last month after Ogen fought off competition from 2,500 applicants to become the first recipient of an expanded credit provider license from the Finance Ministry's Capital Markets Authority. Providing low-interest loans to small businesses, young home-buyers and NGOs on a nonprofit basis, the fund is backed by supporters around the world, each investing in excess of $1m. The low-risk investment fund, underwritten by Ogen's historical default rate of just 0.7%, is limited to 29 depositors until Ogen receives a banking license. While the fund mainly attracts philanthropists, it does aim to promise a modest return. “The idea of the social bank follows the concept of giving a financial home to those people that are discounted and marginalized by the [regular] bank,” said Balasha. “[And] helping them, not just with better terms, but advising them how to manage their financial lives. “The unique feature of the social bank is that there is no shareholder taking dividends. We need to be balanced and efficient, but we want to do good. Providing dividends is not our mission statement – that is why we are so different from any other player in the market.” THE DECISION to seek a banking license follows a series of measures implemented by the Bank of Israel to reduce entry barriers into the banking industry. These include reducing the amount of initial capital required from NIS 400m. to NIS 50m., and the formation of a Licensing and New Banks Unit to guide applicants through all stages of the licensing process. In September, the BOI approved the establishment of a new digital bank – the first banking license granted in over four decades – by Israeli businessmen Marius Nacht and Prof. Amnon Shashua. Ogen, Balasha said, has already raised the requisite funds to establish their bank, also operating on a digital platform, and is hopeful of receiving a license within the next year. The Bank of Israel's supervisor of banks, Dr. Hedva Ber, saw a “lot of need” for a nonprofit bank and credit provider during meetings with Ogen, Balasha said. According to David Angel, director of strategic partnerships at Ogen, the development of the social bank can be traced back to the mass cost of living protests that swept the country in 2011, expressing public frustration at economic inequality and consumer price inflation. “One of the main outcomes of that process was the Bank of Israel bringing down the capitalization requirement for the establishment of banks,” said Angel. “In that sense, we are a direct outcome of the Israeli public pushing for change. We are not competing with Nacht and Shashua, in the sense that they want to cater to the clients that we won't be catering to. We'll be a complementary rather than competitive initiative.” A view of Ogen's Jerusalem office (Credit: PR) The practice of interest-free lending advanced by Ogen, Angel added, stems from the Torah, where charity is defined as interest-free lending rather than giving money away. The nonprofit has worked with rabbinic authorities to ensure that interest charged is strictly in line with Jewish law. “It is a reflection of the unique challenges of running a financial institution in Israel in line with religious values,” said Angel. “We have a lot of knowhow in lending to customers who are often considered as credit risks by the commercial banking system, and we know how to successfully engage with them and lend to them. “For a lot of our donors and investors, there is a real sense of meaning and satisfaction in knowing that when you give someone a loan, you give them an opportunity and a form of obligation – a social contract by which they need to pay back, and giving fishing rods rather than fish.”

Israeli non-profit plans unique social bank, expanding credit access

Seeking to close social gaps by ensuring full access to economic opportunity, Ogen is now embarking on an ambitious and unique project licensed by the Bank of Israel (BOI).

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Israeli non-profit plans unique social bank, expanding credit access

Seeking to close social gaps by ensuring full access to economic opportunity, Ogen is now embarking on an ambitious and unique project licensed by the Bank of Israel (BOI).

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