Insights and Recommendations for Implementation - IFIE - מימון משולב בישראל

Recommendations for Stakeholders

Philanthropy

Philanthropic organizations and individuals play a key role in advancing blended finance. Below is a summary of the various ways in which philanthropic involvement is emerging in the design, establishment, and strategic direction of blended-finance funds in Israel:

A key provider of catalytic capital – offering concessional capital, particularly through first-loss layers, in order to de-risk investments and attract private and institutional capital.
Creating an anchoring effect – serving as an early and significant anchor that helps attract additional philanthropists, investors, and public support.
Social and environmental objectives – leading the strategic direction and framing of the social and environmental goals of blended-finance funds.
Financing technical assistance facilities – supporting advisory services, training, guidance, and data collection (impact measurement, data standardization, and information sharing), all of which are essential for attracting institutional investors.
Building infrastructure and convening bodies – contributing to the establishment of core institutions that design and manage blended-finance models.
Encouraging collaboration – helping to build connections among stakeholders and supporting the growth of investable projects and organizations.
Stable, multi-year funding – committing to stable, multi-year financing (rather than one-off grants), in order to provide certainty to funds and to the wider ecosystem.
Investing in human capital – funding professional training for managers, advisers, and conveners in the blended-finance field in Israel, and developing capabilities among actors on the ground, such as local authorities and medium-sized business owners – who will serve as key players in developing investable projects.

Government

Government has a critical role in both removing barriers and creating demand for blended-finance tools. Government ministries are central actors with the ability to set national and regional goals, grounded in a system-wide understanding of sectors, market conditions, and the most critical areas in need of action.

Barrier removal can be achieved by establishing pathways for implementing blended-finance tools—both through regulatory and tax adjustments, and through guarantees and incentives provided to investors and philanthropies within blended-finance structures.

Adjusting reporting frameworks – institutional investors in Israel are currently required to report monthly and quarterly performance. To encourage investment in blended finance, designated exceptions should allow for performance assessment over longer horizons (5–7 years).
Distinct treatment of blended-finance investments – blended-finance investments should be excluded from existing investment caps in certain sectors (such as real estate), ensuring they do not come at the expense of regular institutional investment activity.
Recognizing long-term investments – establishing a framework in which the success of blended-finance investments is assessed over longer timeframes, separate from routine reporting, thereby reducing short-term performance pressures.
Regulatory recognition of impact investment – the Israeli Capital Markets Authority published a policy paper in 2020 recognizing ESG as part of financial risk management. Expanding this recognition to include blended-finance investments would make it easier for institutional investors to justify long-term investments to internal auditors and regulators.
A limited-scale institutional pilot – allocating a defined amount to Israel’s first blended-finance fund. Such a step would enable learning, experience-building, and knowledge accumulation prior to broader scaling^[10].

As government bodies incorporate blended-finance principles, together with measurable outcomes and a clear link between funding and results, they send a signal of trust and demand for such financing models. Blended finance enables not only a focus on outcomes, but also systematic measurement grounded in the private sector’s screening, due-diligence, and economic-analysis capabilities – thereby enhancing the quality of government investment.

Investors

Private and institutional investors are essential to blended-finance funds not only because of the capital they can deploy, but also due to the expertise they bring: understanding market trends, assessing potential investments, and managing portfolios to maximize overall returns and ensure the success of the fund. To harness the unique strengths of private and institutional investors, we outline several practical recommendations:

Developing dedicated expertise – most institutional investment managers in Israel operate according to asset-class divisions. It is recommended to enable and incentivize the development of specialized knowledge and tools for combining equity and debt, which characterizes blended-finance funds.
New growth opportunities – the holistic approach of blended finance, integrating social and environmental considerations alongside financial ones, exposes investors to areas that may not have been accessible through financial analysis alone. This enables participation in inclusive and regional growth, strengthening economic stability and creating direct benefits for both institutional investors and private-equity funds.
Building expertise in hybrid financing structures – while the Israeli investment market tends to maintain a clear separation between debt and equity, hybrid models that combine them are widely used internationally and form the basis for blended finance. Developing the relevant professional capabilities will allow investors in Israel to participate effectively in such models and benefit from their advantages in capital leveraging and risk mitigation.

Conveners

Conveners and professional advisers in the field play an important role in the success of blended-finance models. Their work includes designing tailored legal and financial structures, connecting stakeholders by creating a shared language, and building trust. Israel already has key actors in this field, including Social Finance Israel, Weave Impact, and Ira Friedman, which together form an initial layer of professional infrastructure.

Insights and Recommendations for Implementation

Key Insights

Fundamentally, the blended-finance model extends beyond collaboration among different actors; it is rooted in designing an integrated financial structure that brings together public, philanthropic, and private capital in a way that creates a multiplier effect for all stakeholders.

In the course of this work, we identified four main sectors in which blended finance can effectively address market failures and contribute to substantial growth: manufacturing and medium-sized businesses, real estate, green infrastructure, and agriculture. These sectors combine economic potential with social and environmental impact, making them particularly suitable for mobilising investment through blended-finance tools.

To ensure the funds are appropriately targeted, social and environmental objectives and indicators— together with the desired financial returns—should be defined in advance as investment eligibility criteria. Examples include investment in the periphery, creation of quality employment, or increasing the share of renewable energy. Beyond these core definitions, it is recommended to incorporate incentive mechanisms that reward fund managers for social and environmental performance, so that success metrics such as carbon reduction or growth in quality employment stand alongside financial return considerations.

In addition to the funds themselves, an enabling environment is required. This includes forming convening bodies (convenors) that bring together stakeholders, foster collaboration and trust, facilitate transactions and funds, and deliver training and skills-building. These bodies also promote cross-cutting measures such as regulatory alignment and the removal of operational barriers. Although interest in blended finance is growing, implementation is still held back by professional uncertainty, knowledge gaps, and the high cost of establishing initial models. Supporting the development of this enabling environment—including bringing in international expertise and cultivating local capabilities—is essential for generating early successes that build confidence and encourage broader adoption of these tools.

It is important to broaden the definition of market failure beyond a narrow financial lens to include wider economic, social, and environmental dimensions that are critical to inclusive growth. In this context, adopting a regional economic-development perspective can help frame opportunities more effectively, with local authorities and regional clusters playing a pivotal role. These bodies have a deep understanding of needs on the ground and act as a central governmental arm for implementation.

Blended finance also has the potential to attract additional capital into the Israeli economy. Among Jewish philanthropists in the diaspora, there is growing interest and willingness to invest in a mechanism that combines financial stability with large-scale impact—particularly in light of donor fatigue following the significant mobilisation since October 7. Institutional investors, who currently direct a large share of their investments overseas, may likewise be drawn to new local opportunities if these are consolidated into sufficiently substantial funds.

To position blended-finance funds competitively against other market alternatives, clear benchmarks for equity and debt investments are needed—for example, returns comparable to government bonds or average sector market returns. In addition, government incentives can be used to make it easier for institutional investors to participate. Widely used performance-based incentives for fund managers can also help attract experienced, high-quality managers and accelerate the development of the field.

Finally, the definition and measurement of social and environmental objectives must be focused, simple, and practical: a limited set of indicators that are clear to all funding partners and straightforward to collect and measure. This will make fund management easier, reduce operational burdens, and enable clear lessons to be drawn about successes and failures—an essential foundation for building trust and driving continuous improvement in the field.

Long-Term Strategic Steps

At the national level, Israel needs to build a foundation of knowledge and skills, alongside legal and regulatory pathways that enable and encourage blended-finance structures. This includes training fund managers, developing standards for impact measurement, creating frameworks for combining debt and equity, and establishing structured mechanisms for guarantees and risk-mitigation instruments. These foundations will help the market mature, reduce high transaction costs, and narrow the gap between limited catalytic capital and the large-scale investment opportunities sought by institutional investors.

At the same time, establishing an Israeli wholesale fund could serve as a strategic engine for the development of the entire ecosystem. Such a fund would bring together philanthropic, governmental, and institutional resources; act as a convener that develops dedicated funds; build a high-quality investment pipeline; and promote a holistic approach to regional and national economic development. This would provide greater certainty for investors, lower barriers and facilitate institutional investor participation, and help develop an ecosystem in which blended finance is viewed not only as a financial tool but also as a strategic component of Israel’s economic recovery and growth^[11].

In conclusion, blended finance in Israel is at a critical crossroads: while recognition of its importance is growing in light of the recovery and growth needs following October 7, realizing its potential will require proactive and coordinated action from all actors. The central challenge is establishing a regulatory, financial, and operational infrastructure capable of converting limited philanthropic and governmental capital into a catalyst for substantial institutional and private investment. If the necessary steps are taken, blended finance can evolve from a pilot model into a large-scale strategic tool—one that drives meaningful investment in the periphery, strengthens social and economic resilience, and contributes both to reducing environmental risks and to building an inclusive and resilient Israeli economy over the long term.

Mobilizing Institutional Investors for Financing Sustainable Development in Developing Countries. OECD (2021). Retrieved September 16, 2025.
The study Establishment of a Wholesale Impact Investment Fund in Israel, by Etam Cohen (The Milken Innovation Center and The Israeli Forum for Impact Economy), is forthcoming.