Blended Finance in Israel –
Opportunities and Challenges
Why Now?
Israel stands at a crossroads where urgent needs intersect with significant opportunities. Post-war recovery and growth require new financing solutions capable of addressing the immediate challenges faced by affected peripheral regions, struggling businesses, and damaged infrastructure—while at the same time building a sustainable economy and advancing long-term national objectives. Blended finance, which has already proven globally to be an effective mechanism for mobilizing substantial capital and addressing structural market failures, offers Israel a strategic opportunity: not only for a targeted response, but for systemic, inclusive, cross-sector rebuilding.
Opportunities in Blended Finance
Recovery and Growth – Focusing on the Real Economy
The extensive damage to businesses and infrastructure—particularly in the north and south—creates an urgent need to channel financing into real economy growth: manufacturing, medium-sized enterprises, and physical infrastructure, rather than solely into technological innovation. Blended finance enables capital to be directed towards stable, long-term growth, strengthening supply chains and supporting local communities.
The Need for Significant Capital and Building a Sustainable Economy
The scale and intensity of the challenges require mobilising capital far beyond what the public sector or philanthropy can provide on their own. Blended finance, which leverages public and philanthropic resources to attract private capital, serves as a mechanism both for expanding the overall volume of investment and for directing it towards building a holistic economy—one that is growth-oriented, inclusive, and sustainable.
Proactively Addressing Market Failures
Key sectors exhibit clear market failures: insufficient tailored financing, high perceived risk relative to modest expected returns, and a shortage of flexible investment instruments—especially in certain regions (notably the periphery) and among specific communities. Blended finance enables the design of investment mechanisms that reduce risk, create greater certainty for investors, and channel resources directly to areas where the market falls short—contributing to inclusive growth and generating social and environmental value.
Growing Openness Among Philanthropic Actors
Although some hesitation remains regarding the adoption of innovative financial tools and closer partnership with the business sector, philanthropic actors in Israel and in the Jewish diaspora are showing increasing interest in blended finance. For them, it presents an opportunity to expand the scale of their funding in priority areas, particularly in supporting recovery efforts in northern and southern Israel.
Government as a Partner and an Enabler
Government participation as a central actor—not only in providing capital but also in removing regulatory barriers and offering guarantees—is essential for success and for building confidence among institutional and private investors.
Transitioning from Financial Metrics Alone to Integrated Metrics:
Inclusive Growth and a Sustainable Economy
The success of blended finance is not measured solely by financial returns but by its contribution to sustainable economic development and inclusive growth. Designing investment structures that embed incentives for social and environmental performance enables broader outcomes to be measured and rewarded. In this way, blended finance encourages investments that help shape an economy that combines profitability with sustainable public value.
Blended Finance as a Growth Engine for Exports
Blended finance can also serve as a strategic driver for expanding Israeli exports into new markets. It offers a wider range of risk-mitigation instruments—such as subordinated debt, guarantees, and equity investments—that lower barriers and enable companies to scale their export activity. In this way, blended finance becomes a central tool not only for domestic economic recovery but also for enhancing Israel’s global competitiveness through export expansion.
Barriers and Challenges in Implementing Blended Finance in Israel
Blended finance holds significant potential to advance sustainable growth in Israel, yet its implementation faces a range of challenges. There are regulatory, operational, and cultural barriers, alongside limitations in cross-sector coordination and infrastructure—all of which slow the development of the field. These challenges differ by sector, by type of actor, and by the type of model being applied.
Regulatory and Operational Barriers:
Israel’s financing system is not fully adapted to hybrid investment models, and various restrictions apply to different types of capital providers. Without clear investment structures, appropriate legal frameworks, and government guarantees, it will not be possible to scale the market meaningfully8. Furthermore, in the absence of incentives or benefits for investors or donors using blended-finance tools, bureaucratic and operational challenges remain a significant obstacle to establishing complex financing platforms.
Cultural and Perceptual Barriers:
A significant portion of philanthropy in Israel remains focused on traditional grants, whereas partnerships with the business sector are not yet common practice. The expectation of business viability and financial return—required to justify blended-finance investments—does not always align with the traditional areas of engagement familiar to philanthropic actors. Conversely, for institutional investors, blended-finance mechanisms—designed to generate social and environmental value alongside financial returns—often require active facilitation to bridge differences in terminology and investment culture.
Case Studies
Areas for Applying Blended Finance
Over the past year and a half, the Israeli Forum for Impact Economy has led an extensive process to raise awareness, identify needs, and analyze opportunities related to the potential for blended finance in Israel. This process was conducted in collaboration with: JDC Israel, the Accountant General’s Office at the Ministry of Finance, the Milken Institute, IMagine IMpact, the Arison ESG Institute at Reichman University, the Institute for Philanthropy at Tel Aviv University, the PAI Foundation, REGENIL, and GROWING IL. The process was informed by rich insights gathered from discussions and ongoing dialogue with stakeholders across all sectors and areas of expertise, through meetings, interviews, and roundtable sessions involving representatives from more than one hundred organizations.
Drawing on this knowledge base, the following section presents a focused analysis of domains with strong potential for value creation through blended-finance tools.
Agriculture: The agricultural sector faces significant challenges in securing long-term financing, particularly in the periphery, due to climate risks, insufficient collateral, and barriers to technology adoption. Blended finance—through catalytic capital and technical-assistance grants—can mitigate risk, enable the introduction of advanced technologies and infrastructure, and thereby attract private capital into the sector.
Green Infrastructure and Renewable Energy: Investment in renewable-energy projects in the periphery is characterized by high capital costs and financing challenges for small projects, especially in the absence of adequate investments in grid infrastructure. Blended finance mobilizes public and philanthropic capital to reduce capital costs and improve project economics, making it possible to attract private and institutional investment at scale.
Real Estate and Urban Regeneration: In the periphery, relatively low land values constrain the economic viability of urban-renewal projects, and the sector as a whole suffers from low levels of industrialization and innovation compared with global benchmarks. Catalytic capital and technical-assistance grants can improve the risk-return profile, introduce innovation, and help mobilize private and institutional capital.
Medium-Sized Businesses and Manufacturing: Medium-sized businesses—especially in the periphery—experience severe credit shortages: they account for more than half of the business-sector output, yet receive only about one-fifth of available credit. Manufacturing faces shortages of skilled labour, low innovation levels, and high exposure to economic shocks. Blended finance reduces investor risk through catalytic capital and technical support; strengthens managerial capabilities, knowledge-building, and innovation; and enables the deployment of concessional funding that enhances economic resilience.
Existing Examples in Israel
Blended finance in Israel is still in its early stages, but several organizations already implement active blended-finance models. Some involve only two sectors rather than all three, yet they still provide important case studies and practical experience from which valuable lessons can be drawn.
Two detailed case studies, presented in the report “Philanthropy and Blended Finance”[9], are summarized below:
ReHome – Blended Finance in the Housing Sector
ReHome is a loan fund designed to provide housing solutions for families directly affected by the events of October 7. These families were residing in communities in the Gaza Envelope at the time of the terror attack and, due to profound personal loss and severe place-based trauma, are unable to return to their homes. They face a dual challenge: the loss of their homes and of those closest to them, alongside a significant loss of personal and family security and stability. This reality is further compounded by substantial economic and structural barriers that prevent them from securing alternative housing independently.
ReHome addresses a critical structural financing gap faced by these families in purchasing a permanent residence that can serve as a stable and safe home. In Israel, the equity requirement for obtaining a mortgage is approximately 30% of the property value. Most affected families are unable to meet this threshold because their assets were destroyed or damaged in the attack, are located in inaccessible areas, or are held within collective kibbutz frameworks that cannot be realised or sold in the short term. ReHome supports the structuring of financing solutions for the required initial equity, thereby enabling families to move towards a sustainable housing solution.
Ogen Group – Social Bond II
Ogen is a non-profit social-finance organisation that works to expand access to life-changing opportunities for families and individuals, small-business owners, and non-profits. These groups face structural financial-market failures that limit or prevent them from accessing affordable credit and essential financial knowledge, leaving them with costly or inadequate alternatives.
Ogen bundled hundreds of loans it had provided to small businesses into an asset-backed bond, enabling it to raise capital from institutional investors. This capital was then used to extend concessional loans to small businesses and non-profits. Philanthropic capital served as a first-loss layer, while Ogen itself provided technical assistance—financial guidance and training—funded by philanthropy.
- The information is based on roundtable discussions held as part of a consultation meeting regarding the establishment of investment funds for growth-promoting projects. The meeting was initiated by the Office of the Accountant General at the Ministry of Finance, JDC Israel, and the Israeli Forum for Impact Economy (IFIE), and took place in Jerusalem on May 13, 2025.
- The study Philanthropy and Blended Finance, by Dr. Aya Navon-Vargaft (The Israeli Forum for Impact Economy) and Dr. Osnat Hazan (The Institute for Law and Philanthropy, Tel Aviv University), is forthcoming.