January 2014

A new study shows economic return of social business to be in the range of millions of dollars
Social businesses, enterprises using business tools to solve social problems, have become common worldwide. In Israel too, social businesses have become increasingly more popular, and today there are many social businesses that focus on training and employment of disadvantaged populations, educating, and promoting subjects like environmental protection and more. These enterprises create real value and make a significant contribution to disadvantaged populations; therefore their tremendous success is not surprising. Nevertheless, if we could quantify this success over time using pure economic tools, we would be able to streamline current activities and better present to investors the potential return on social investment, which would lead to the development of a social investment market in Israel. In the past few years there have been attempts to measure and evaluate the double bottom line return on investment social benefit alongside the financial return of social businesses. Just as business companies are measured by their return on capital, one of the common methods to evaluate a social business is to measure its SROI (Social Return on Investment). For the first time in Israel, extensive research and economic studies were conducted to measure the social return resulting from the investment of Dualis Social Investment Fund in two social businesses: Liliyot restaurant and Cafe Ringelblum. Liliyot restaurant, a chef's restaurant in Tel Aviv, and Cafe Ringelblum in Beer Sheva, were both established to provide youth at risk with personal and interpersonal tools and skills to allow them to integrate into society and to provide them professional cooking skills. The social programs in these businesses achieved great success, as demonstrated by research conducted at Ben Gurion University and Bar-Ilan University. The research conducted by Dr. Aharon York of Bar-Ilan University among dozens of Liliyot graduates, shows considerable improvement in the situation of those who were trained in the program. All of them became independent and productive citizens, and some of them were even able to find employment as cooks in leading restaurants in Israel. The social return was measured as the cost of training a youth in the project compared to. the output that was defined as the expected change in the Country's expenses or revenues as a result of the change of turning a youth at risk from a welfare consumer into a productive worker in the economy.

The research results were astonishing. At a cost of NIS 65,000 for training each youth in the project, the research found a decrease in the State's expenses and a significant increase in the expected revenues of NIS 1 million per youth - more than 15 times the required investment. For illustration purposes, when calculating the expected increase in State revenues from income tax, the research studied the improvement in the employment rate of youth taking part in the project vs. similar youth who did not participate in the project, and the implications for the State's tax revenues.

In light of the current data, one can see that without these projects, there is high probability that youth who drop out of high-school, use welfare services and are even involved with law enforcement as criminals and probably will continue this way of life, continue to be welfare recipients, and place an economic burden on the State. This has tremendous economic implications for the State in two main ways. One results from the expenses incurred by the State for these youth, and the other is the lack of contribution of such youth to State revenues, as a result of the fact that they are not part of the labor market.

As one can see in the graph, the participation and training of a youth in the project is expected to save the State expenses amounting to more than NIS 370,000, resulting mainly from a reduction in the probability that these youth would require support from welfare services and payments like income support and unemployment insurance, and savings due to the reduction of criminal activity and the related expenses. In addition, with respect to the State revenues, the research suggests that training the youth and increasing the probability of integrating them into the labor market would yield increased revenues of more than NIS 600,000 for the State during their employment period, derived mainly from income tax, VAT, health insurance and social security payments. The results clearly show the great social return on investment in social businesses. Meaning, social businesses not only help disadvantaged populations to take advantage of their potential and save the handling and rehabilitation expenses of welfare authorities, but also create significant economic value for the State. Only 15 youngsters, for example, participated annually in the training program of the Liliyot restaurant. Imagine the high social and economic return that could have been earned by the State and investors on those projects if these were expanded to include a much larger population throughout the country. This research was conducted by the Nova Project (non-profit organization), that provides professional consultation to the Association through a team of senior, experienced consultants from the business world. The team working on the project comprised six volunteers, headed by Michael Sarfati senior consultant and CPA of KPMG's Economic Department, in collaboration with Eli Mizroch senior associate at Task Strategic Consulting. The research was based, among other things, on prior academic research carried out at Bar Ilan University and Ben Gurion University, data from the Adalya Economic Consulting that works with the Ministry of Finance, and published statistical and economic data from the various ministries of the State of Israel.

Dualis Israel Social Investment Fund (Non-Profit Organization) Info@dualis.org.il Tel: +972-9-9541919 www.dualis.org.il/en
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