Diaspora Jewry Plans to Underwrite $900 Million in Loans for Soviet Jews

As Israel organizes for the absorption of 1 million Soviet Jews by the end of 1993, Diaspora Jewry is poised to underwrite a $900 million loan program to assist in what is being called a historic wave of immigration.

Jewish federations around the world will guarantee the loans by putting up their assets — including future campaign earnings — as collateral against potential massive loan defaults.

Arriving Soviet immigrants, who receive basic absorption grants covering first-year housing and other expenses, will now each receive $1,000 of the package in loans backed by Diaspora Jewish communities.

As one federation official put it: ‘We’re betting the ranch,'” said Charles Goodman, president of the Council of Jewish Federations, which represents some 200 North American federations and was the prime initiator of the program.

For what is believed to be the first time in American Jewish philanthropic giving, the community is resorting to a large-scale loan program to assist Israel, rather than relying solely on direct contributions.

The loan program will be complemented by a $650 million fund-raising campaign, the last $200 million of which will go to a reserve fund to cover loan defaults.

Goodman and others said loans were the logical step, given the requirements of the Soviet Jewish immigrants, who are streaming into Israel at a rate of a few hundred a day, and the responsibility U.S. Jews feel toward aiding Israel and Jews in distress.

“It just seemed the very appropriate way to finance this problem, because everyone is convinced it is well beyond our philanthropic capacity,” to raise the sums of money needed, he said.

VOTE SET FOR APRIL 16

The loan program, along with the worldwide fund-raising appeal, will be put to a vote April 16 in Washington during an extraordinary General Assembly of North American federations.

Although formal approval is expected from almost all federations, CJF officials have spent recent weeks trying to anticipate and answer concerns, so as to ensure final support. Other Diaspora Jewish federations are expected to ratify the program and fund-raising appeal at a later date.

The fund-raising campaign will be split between the United Jewish Appeal, the major fund-raising arm of American Jewry, and Keren Hayesod, which raises money from Diaspora Jewish communities outside the United States. The UJA campaign goal is set at $450 million; Keren Hayesod is responsible for the remaining $200 million.

This comes on the heels of the 1990 Operation Exodus campaign, in which UJA raised $420 million and Keren Hayesod raised $180 million.

Although that campaign was by all accounts an overwhelming success, the unexpected surge in Soviet Jewish immigrants forced both Israel and the Diaspora Jewish community to radically rethink financial requirements. Close to 200,000 new immigrants arrived in 1990, and this year 300,000 are expected.

Israeli officials have estimated the total costs of the immigration and absorption of 1 million Soviet Jews, including long-term housing, job creation and schooling, at a minimum of $40 billion.

$450 MILLION FROM JEWISH AGENCY BUDGET

Diaspora Jewry’s contribution to this will total around $2.6 billion. This figure includes the $600 million raised in Operation Exodus, the $650 million to be raised in the new campaign and the $900 million loan program.

The remaining $450 million will come from the regular budget of the Jewish Agency for Israel, which is mainly financed through annual donations to UJA and Keren Hayesod. The Jewish Agency pays the entire cost of bringing the immigrants to Israel, as well as a portion of their initial resettlement costs.

It will be responsible for distributing the moneys raised in the UJA and Keren Hayesod campaigns, as well as the loans guaranteed by the federations.

The loans will technically be guaranteed by CJF, but because CJF has no assets to speak of, federations will in turn guarantee CJF’s loan and accept final responsibility for any defaults over the $200 million reserve fund, said Frank Strauss, director of communications at CJF.

According to the preliminary plan that has been distributed to North American federation leaders, 148 U.S. federations will guarantee $750 million in loans, while federated communities in Canada and elsewhere will be responsible for $150 million in loans. The loans will be provided by Israeli banks.

If one or more federations decide against accepting the loan program, the federations that approved it will take on the extra indemnification, CJF officials said. The risk will be spread out among federations according to a formula based on their Jewish populations and their previous fund-raising capabilities.

Currently, if all the U.S. federations accept the program, financial responsibility will range from 0.02 percent of $750 million for the small Rockford Jewish Community Council in Illinois, to 19 percent of the total for the UJA-Federation of Jewish Philanthropies of New York, said Strauss.

CONCERN ABOUT DEFAULT RISK

Although there is little chance North American Jews, through their federations, will turn down this program in the midst of the largest wave of Jewish immigration to Israel, some federation officials are raising questions about the potential risk in guaranteeing loans that in many cases exceed a particular federation’s net worth.

“There’s no record that would suggest that we know how to measure that risk,” said Goodman of CJF. “We all recognize that we are taking that risk and that we will try to mitigate that risk as much as possible.”

The loans, which will cover the Jewish Agency’s share of the immigrant “absorption basket” provided by Israel’s Absorption Ministry, will have a 10-year payback schedule.

Since March 1, the Jewish Agency has been offering each new immigrant a $1,000 loan instead of the grant it formerly provided. Once the loan program is approved, federations will accept retroactive responsibility for the loans.

Some federation officials are specifically worried that the generous 10-year payback period, with no payments required until after the fourth year, will hinder the Israeli banks’ ability to collect money owed.

“I will not accept that a four-year delay will do anything but hurt repayment,” said Mel Bondy, treasurer of the Allied Jewish Federation of Denver. He pointed out that after four years, it may be difficult for banks to track down people who took out loans.

“People don’t like to wake up four years later and find that money is owed. People tend to forget these things,” he said, adding that nonetheless, he would vote in favor of the program.

A ‘GENEROUS PAYBACK SCHEME’

And although Israeli citizens can run into trouble trying to leave the country if their debts are in arrears, the generous payback scheme of the loan means that “we won’t know if they are in arrears for four years, so there clearly is an additional risk,” said Goodman of CJF.

Israeli banking law does require that such loans also be guaranteed by two individuals in Israel, but for the Soviet immigrants, the rules were relaxed to allow one of the signers to be a relative over the age of 18. It is also unclear how many loans one individual will be able to coguarantee.

While CJF officials acknowledge the risk involved, they say the history of immigrant loan payback is healthy and that small defaults will be covered by the reserve fund. They also counter that Israeli banks will track address changes and will periodically send reminders during the first four years.

As is usually the case with immigrants from “countries in distress,” the Jewish Agency picks up transportation costs and the costs of shipping and storing luggage. With the onslaught of Soviet Jews, what was a transportation and storage budget that hovered around $6 million in earlier years has now burgeoned into $194 million for the remaining nine months of 1991 alone.

Officials of CJF, UJA and the Jewish Agency developed the idea of a loan program as a way to aid immigration without bankrupting Diaspora Jewry.

Officials feared that a multibillion-dollar fund-raising campaign, conducted while regular UJA and Keren Hayesod campaigns were under way, would stretch the Diaspora Jewish community beyond its ability to give.