Israel’s Western Negev Region, also called the Gaza Envelope, was once known for its agricultural fields, kibbutzim and peacenik residents. Now, ravaged by the Oct. 7, 2023, Hamas attacks, continuing rocket attacks and the evacuation of its residents for more than a year, the region is in desperate need of revitalization, estimated to the tune of $6.5 billion to $9.3 billion.
Seeing a need, the Milken Institute think tank convened one of its keystone “financial hack-a-thons” called the Financial Innovations Lab, this time bringing together more than 50 venture capitalists, investors, philanthropists and government officials to create a plan for revitalizing Israel’s war-ravaged economy.
The “Innovative Finance for Rebuilding Israel’s Regions” report, released by Milken on Feb. 20, says, “The context of the war, marked by significant physical destruction and major disruption to the Israeli economy, has created a profound and widespread need for investments” in industries including infrastructure, housing and economic development. To that end, Lab participants came together to devise a funding platform “blending public, philanthropic, and private capital to finance critical infrastructure and business recovery projects.”
The Tekuma Authority, an office established by Israeli Prime Minister Benjamin Netanyahu just days after the Hamas attacks tasked with rehabilitating the Gaza Envelope region, identified key sectors for targeted investment by the funding platform: energy security, including underground power transmission lines, solar infrastructure and agrivoltaics; business development, including micro financing, personal loans and financial education; planning and development for housing and commercial use, tourism and transportation infrastructure; creating “technology centers of excellence” in agritech and desert tech; and local authorities who can advance urban-rural integration.
Lab participants decided the “immediate priority is to establish a centralized blended financing platform that can pool resources and deploy capital efficiently,” and developed a public-private-philanthropic partnership model, laid out in the 64-page report, to meet the moment.
The model envisions buy-in from philanthropic investors, public sector investors, private investors, impact investors and socially responsible investors. They would utilize tools including small business loans and microloans, bonds, first loss guarantees, tax credits and exemptions and land banking — where a government body “deposits” available land for investors to lease for development — to drive capital to the region.
The Israeli government would be expected to offer direct grants and seed funding, lower development fees and provide legal and regulatory support. Participants noted the “importance of achieving investment-grade ratings to attract insurance companies, pensions, and sovereign wealth funds” to invest as well. A representative of the ratings firm Moody’s was in attendance at at least one of the Lab meetings.
Though the Tekuma Authority was given a budget of 19 billion NIS ($5.2 billion), the report notes that “relying solely upon unleveraged budget allocations will not deliver recovery and reintegration of the Western Negev into the mainstream Israeli economy. Nor will the national economy achieve a sustainable recovery without regional integration mainstreaming the North and Southern communities.”
Apollo Global Management, an asset management firm focused on alternative assets that was a major financial sponsor of the Labs, provided its expertise on private credit, educating participants on how private investment-grade securities can be part of a solution for postwar reconstruction, especially given the growing comfort and appetite among institutional capital — insurance companies, sovereign wealth funds, asset managers, etc. — to invest in these kinds of securities.
Ogen, the leading non-bank lender in Israel described as “essentially the first social bank in Israel,” was used as a case study for successful nongovernment lending models. Israel’s lending system is dominated by the country’s five largest banks, with many small business owners unable to access capital due to risk assessments. Seeing a need, Ogen created a portfolio of affordable loans for small businesses, packed and sold its portfolio in the capital markets and used its philanthropy as its first loss, the security that bears the first risk of loss in the event of a default.
The report modeled a first-loss provision that the Israeli government could implement to back banks like Ogen and stimulate postwar recovery. Using relatively little capital — $3 million for the first tranche and $30 million for the second — Ogen’s default rates, currently 2.4%, would need to double for the first tranche to be impacted and increase five-fold for the second to be impacted. The report suggested that the state establish classes of business owners eligible for these loans, such as having 50% of senior management called up for reserve military service or 30% of positions remaining unfilled due to employees’ reserve service or evacuation orders.
“These models of partial support first-loss are very common,” said Michael Kashani, managing director at Apollo. “Just not in Israel. It’s not foreign to the global market, but it has been foreign to Israel thus far.”
That is why, Kashani said, Apollo was excited to support this project, as part of Milken’s model is working directly with policymakers both as meeting participants and as the audience for resulting reports, which they can localize as needed. Representatives from the Israeli Ministry of Finance, budget office, Ministry of Foreign Affairs, Tekuma Authority and other state bodies were in attendance at the Lab meetings.
In addition, the report was discussed before its publishing at Milken’s Global Conference in 2024 which Kashani called “a really compelling meeting point for some of the largest financial asset owners and asset managers as well as policymakers.” Kashani confirmed that the now-published report would be discussed again at the 2025 Global Conference happening in May as well as Milken’s Middle East and North Africa conference in December.
The report went on to say, “Successful post-war reconstruction goes far beyond emergency relief and recreating the past. Opportunities include reconstructing the health and education sectors, improving physical infrastructure and transportation, advancing economic reintegration and employment, and reducing demographic inequalities.”
“The projects financed by the platform will also deliver measurable environmental and social benefits,” the report claims. “Prioritizing environmental and/or social impact is crucial as it ensures the projects foster sustainable development and improve quality of life for local communities. Addressing environmental challenges, such as climate resilience, not only strengthens regional ecosystems but also aligns with global sustainability goals. Similarly, projects that promote social equity, create jobs, and enhance infrastructure contribute to long-term community stability and growth.”
“The feedback [on the report] has been just extraordinary. We’ve received a lot of questions and interest and really, the goal is to encourage dialogue and discussion. Whether the exact recommendations of the report are the ones followed is in some ways not important, it’s that some new ideas come up for rebuild,” Kashani said.
The report bases its optimism on several nongovernmental efforts already underway in Israel: “Initiatives such as ReGrow Israel, Place-IL, the Western Negev Rebuild Initiative, SouthUp, the Kibbutz Be’eri-Hatzerim Campaign, Brothers-in-Farms, and numerous other self-organizing initiatives demonstrate the social capital available to support these financial initiatives and drive a swift recovery which reinvents this vital region of the country.”
