Bridging Gaps in Development Finance: New Platforms for Frontier Markets

Conference Context & Strategic Focus

• The Milken Institute Israel Center convened to address capital gaps in emerging markets, framing Israel as a "laboratory" for innovations applicable to developing economies.
• Emerging market growth rates (projected ~5.5% through 2014) significantly outpace advanced economies (~2%), driving a shift toward "virtual parity" in 2012 and a trading of places on a purchasing power parity basis in 2013 within an $82 trillion global economy.
• Despite aggregate robustness, prosperity in emerging markets remains uneven, with per capita wealth in these regions lagging far behind advanced economies.
• A critical disconnect exists between market potential and infrastructure; formal banking services are weak, and traditional credit markets are underdeveloped.
• Private capital is identified as the primary engine for growth, as multilateral aid alone is insufficient to bridge the gap.

Eitan Shtib: Vital Capital Fund (Private Equity & Infrastructure)

• Vital Capital operates as a private equity fund leveraging Western capital to execute national priority projects in Africa, specifically targeting affordable housing and energy.
• Angola Model: Following the 2002 end of civil war, Vital proposed an "Aldeanova" model (adapted from the Israeli Moshav) to resettle populations from coastal refugee camps to rural areas.
  • The model integrates individual farming plots with centralized agro-industrial logistics centers for marketing, veterinary services, and processing.
  • Average family income rose from $400–$500 to over $5,000–$6,000 annually within six to seven years.
  • A key structural success was persuading the ex-communist-style government to grant private land ownership to farmers.
• Energy Sector: To address Mozambique's energy deficit without the multi-year delay of massive dams (e.g., the 2MW Cabo Rabassa project), Vital is deploying localized 1–5MW biomass and hydroelectric stations.
• Investment Scope: Vital has invested in Angola and Congo, is active in Ghana, and is evaluating projects in Gabon, Ethiopia, Uganda, Mozambique, Djibouti, and Tanzania.

Tali Zinger: Human Capital & Paradigm Shift

• Zinger argues that government no longer holds a monopoly on economic development due to the rise of interconnected non-state actors and civil society.
• A paradigm shift is occurring toward bottom-up development that integrates three elements: finance (patient capital), adapted technology, and human capital (local know-how and mindset).
• The "New Peace Corps" Initiative: Zinger and partner Ron Fishman are launching a platform to fund students (via Kickstarter-style campaigns) to spend a semester or summer conducting on-the-ground research in developing markets.
  • The goal is to cultivate a cohort of future leaders (working in sectors like Intel or agricultural tech) who possess the specific mindset to adapt technologies to local contexts rather than simply exporting them.
• This approach aims to help small economies "punch above their weight" by leveraging the ingenuity and entrepreneurship of their youth to drive sustainable development.

Anne Heyman: Agahoso Shalom Youth Village (Social Innovation & Scalability)

• Origin Story: Following a 2005 realization of Rwanda's 1.2 million orphans and lack of systemic solutions, Heyman adapted the Israeli youth village model, creating the Agahoso Shalom Youth Village.
• Operational Model:
  • The village houses 500 children in 32 family-like units, each managed by a "big brother/sister" and a caregiver.
  • Local Rwandan architects and builders were hired, and 144 acres of land were purchased (avoiding government expropriation).
  • 130 employees are exclusively Rwandan, with no expat staff, ensuring full local capacity.
• Educational Outcomes:
  • The first graduating class (January 2013) saw 117 of 118 students pass national exams.
  • Four students secured full-ride scholarships to McGill University.
• Sustainability Strategy:
  • Community Integration: A "Tikkun Olam" program requires students to provide community service (e.g., building houses, teaching English/computers).
  • Economic Partnerships: The village is partnering with an Israeli solar company to generate revenue through a Power Purchase Agreement (PPA) while training students in solar energy.
  • Agribusiness & IT: The site serves as a model farm and computer center, linking students' skills to local economic needs.
• Heyman emphasizes that the psychological foundation of the program—teaching orphans they deserve education and care rather than fighting for it—is critical to their success.

Netanel Oded: Government Strategy & Ecosystem Building

• Current Gaps: Israeli firms underperform in emerging markets due to small size, a cultural focus on cutting-edge Western markets, and a lack of understanding regarding social adaptation and local needs.
• Government Initiatives: The Israeli government is shifting from viewing emerging markets as purely philanthropic to economic necessities.
  • R&D Subsidies: Proposed changes will fund R&D focused on adapting technologies to different markets, rather than only cutting-edge innovations.
  • Export Risk Finance: New mechanisms are being developed to insure Israeli firms against the high risks prevalent in emerging markets.
  • Cluster Development: Efforts are underway to group Israeli agrotech and cleantech companies to leverage scale for international deployment.
• Human Capital Programs:
  • Universities are introducing programs (e.g., Ben-Gurion University's Center for African Studies, Jerusalem University's "Glocal" master's) that require students to complete months of voluntary work in Africa.
  • Community centers in project sites train local instructors in arts, technology, and culture to ensure local ownership and cost-effectiveness.

Andrew Taylor: Grand Challenges Canada & Catalytic Funding

• Funding Model: Grand Challenges Canada provides $100,000 grants for 12–18 months to move innovations from concept to proof-of-concept, aiming to then attract private sector capital.
• Philanthropy's Role: Taylor argues that government and philanthropic funds should act as a "bridge" to de-risk projects, allowing them to transition to commercial scales and private investment.
• Innovation in Philanthropy: Funding bodies must innovate their own structures (grant vs. debt vs. equity) rather than applying a one-size-fits-all approach to social enterprises.

Regional Expansion & Cross-Border Learning

• Latin America & Asia: Organizations like Tevel B'tzedek facilitate Israeli volunteer immersion in Nepal (and later Haiti) for one-year embedded community work.
• Evolution of Models: Alumni from the Nepal program adapted the model for the Haiti earthquake response, demonstrating the scalability of the volunteer-embedded approach.
• Israeli Biofuels: Israeli companies are already making substantial biomass and biofuel investments in Latin America, often supported by international funds.
• Future Outlook: There is a strong consensus that the "bridge" model of combining government seed funding, philanthropy, and private equity is essential for scaling social innovations globally.