Israeli Business Credit Data Bill Stalls Amid Coalition Opposition
The proposed Israeli legislation to establish a business credit data repository, a key financial reform aimed at boosting competition in the business credit market, has been removed from the parliamentary agenda. This development follows the United Torah Judaism party's announcement that it will not support government bills, coupled with opposition parties' declared resistance, resulting in the coalition losing its majority to pass the bill. The government now has only a few remaining Knesset sessions, until July 19 at the latest, to approve the proposal.
Last month, the Knesset's Economic Committee approved the bill, which was jointly advanced by the Ministry of Finance, the Bank of Israel, and the Ministry of Justice. The credit data repository is designed to centralize and secure information on borrowers' financial behavior and payment histories, collected from banks, credit card companies, and government authorities. This system aims to eliminate information asymmetry by allowing various financial institutions, with borrower consent, to assess credit risk accurately and offer competitive financing options.
Currently, small and medium-sized enterprises (SMEs) represent about 55% of Israel's business output and 60% of employment but receive only 27% of total credit. Over 92% of these businesses obtain credit from banks, with 83% relying on the bank managing their current account, effectively making them "captive customers" facing higher financing costs due to lack of alternatives. The credit repository seeks to address this structural market failure by fostering competition and reducing the "captive customer" premium.
The initiative follows the successful 2019 implementation of a similar credit data repository for households, which reduced the captive customer premium in consumer lending. Recent research by the Bank of Israel's research division confirmed the effectiveness of such repositories, showing that access to credit data led to a significant reduction in interest rate spreads charged by non-bank lenders in the car loan market, with decreases exceeding one full percentage point by the end of the study period and averaging about 0.3 percentage points.
The bill's delay raises concerns about missed opportunities to save at least 1.5 billion shekels annually for small and medium businesses and to help lower the cost of living through increased credit market competition.
