Originally established to help new immigrants from Ethiopia and the former Soviet Union adjust to their new lives in Israel, the Ogen Group, formerly known as the Israel Free Loan Association (IFLA), is working to become Israel's first "social bank."
These days, Ogen works as a nonprofit loan fund that provides affordable credit to disadvantaged segments of the Israeli public, aiming to increase upward economic mobility for low- and middle-income families, as well as small-business owners. Founded by the late Professor Eliezer Jaffe, Ogen has provided more than 60,000 interest-free loans since 1990 totaling more than $330 million.
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CEO Sagi Balasha says Ogen will become not only the first of its kind bank in Israel but globally. With the initial investment required to open such a financial institution, Ogen has applied for a banking license, working closely with the Bank of Israel, and anticipates receiving the license next year.
With experience in Israel's Ministry of Finance, where he recalled running 30% to 40% of the nation's budget, Balasha moved onto nonprofits, becoming the CEO of the Israeli American Council and building it into a national operation.
As Israel's capitalization requirement for banks decreased in 2015 and with its large equity raised by donors, coupled with years of knowledge as a leading lending platform, Balasha has a vision to lead Ogen to become Israel's first nonprofit bank.
"We have an equity of $55 million raised from donors and have developed an efficient lending system that is lean, and that can help needy people with a relatively small default rate of 0.7 % on the loans," he said.
Ogen is setting its sights on "not being dependent only on donations, but instead raising deposits and charging some interest," he adds, so it can take in more capital and increase the organization's impact tenfold.
In addition to donating to Ogen's complementary loaning program, international individuals and philanthropic foundations with corporate giving arms will be able to lock their money for several years with Ogen, similar to the way Certificates of Deposit (CDs) work. While the money is held (classified as a donation), Israelis in need will receive loans for credit with a modest interest to cover costs and potential default; later, the CD "lenders" will receive all the money back, plus a modest interest. This will empower Ogen to give out larger loans, as well as doubling the size of them, and providing for a part of the economy that is sometimes neglected.
Ogen's aspirations represent a change in paradigm that Balasha says could solve Israel's major problem of access to credit. "This is revolutionary in Israel," he maintains, "as it could give services to the public that doesn't have access."
Helping all segments of society get access to credit
Though Israel is known as the "Startup Nation," he says that sector represents only 8 % of Israel's workforce. "Most Israelis are not a part of it, and those in the periphery are left behind, creating one of the biggest gaps in Western civilization between those who have and those who do not."
Outside of those who have access to capital, credit and investors, continues Balasha, "if you want to open restaurant, barber shop or mom and pop enterprise, for commercial banks it's hard to give [the average Israeli] a loan, and it can be expensive." He stresses that small and medium business must not be forgotten, as they are the "beating heart of the economy, representing 96 % of Israel's businesses."
"That's where we come in," he says. "We are here to help those enterprises and people who are not appealing for the financial system."
Ogen is doing so by helping nonprofits and attempting to solve Israel's three biggest challenges in credit, which according to Balasha, are the housing crisis, debt crisis and integration of the haredi community into Israel's economy.
For entities currently suffering under the caretaker government that is not providing much-needed budgets, Ogen offers loans for the nonprofit sector that Balasha calls an "economic titan," representing 6% of Israel's GDP. "With most income coming from the government, which has crazy delays in its payment schedule, there is a credit emergency for nonprofits which have huge and often vital financial pledges going unmet." Especially for those in the health and welfare sectors, Ogen can help with short-term cash-flow issues as nonprofits await government funding.
Regarding one of the greatest challenges in Israel's economy, Balasha poses that 70% of Israel's population does not have access to a down payment on a home, creating a problem for emerging adults looking to purchase one. "Sometimes, inheriting an apartment is the only chance for Israelis be able to buy now, which is mainly the case only for third-generation Israelis of Ashkenazi descent," he explains.
To address this challenge, Balasha says, Ogen has financial advisors who coach young families "from A-Z to go through the process of looking at income, expenditure, equity, savings and loans, as well as help with contracts and mortgages – all paid for by donors."
Second, to help families living under the poverty line who are caught in deep debt, Ogen is partnering with third-party organizations and the Israeli government to create a program for debt consolidation and financial rehabilitation with interest-free loans (contingent upon financial coaching).
Lastly, Balasha maintains that loans will be pivotal for the haredi community, with figures estimating that the sector will represent one-third of Israel's population by the year 2050. "If they don't integrate into the workforce as the rest of the population, Israel's GDP per capita will decline dramatically, but if they integrate in high-quality jobs, Israel's GDP per capita could beat Canada's," he says. Therefore, Ogen will designate part of its funds to help sponsor haredim with loans for living expenses while they are studying for high-tech professions.
"We see it as a national mission," says Balasha. "We want to change lives, and credit is a lifeline for people who need to build a business, acquire a trade or buy an apartment."
