Israeli Parliament Delays Key Financial Reforms for Small Businesses Amid Political Deadlock
Four significant financial reform bills aimed at supporting small businesses and enhancing financial competition in Israel face delays due to political gridlock and the Knesset's imminent dissolution on Friday at 14:00. These reforms include opening the credit market to small businesses, expanding alternative investment products to the public, and regulating open banking for corporations. The coalition has prioritized legislation linked to a political deal between Prime Minister Benjamin Netanyahu and ultra-Orthodox parties, limiting time for economic reforms.
The most critical reform is the establishment of a business credit data repository, promoted by the Finance Ministry, Bank of Israel, and Justice Ministry. This aims to address structural failures in credit access for small and medium enterprises (SMEs), which produce 55% of Israel's business output but receive only 27% of credit. Currently, 83% of SMEs rely on credit from their primary bank, creating information asymmetry and high interest rates. The new database would enable competing financial institutions to assess risk better and offer competitive terms, potentially saving the economy about 1.5 billion shekels annually. Bank of Israel regards this as the most important financial reform in the current budget.
Another key bill approved by the Finance Committee encourages capital market activity by regulating hedge funds operating as trusts, allowing broader public investment under government supervision. These funds currently manage about 6 billion shekels but operate under a temporary order expiring in early 2027. Without new legislation, public investments could face legal obstacles. The bill also introduces private investment trusts for non-listed assets and extends the maturity of commercial securities loans from one to up to five years, easing corporate financing.
Two additional pending bills include amendments to the Financial Information Service Law, which governs open banking. While open banking functions for individuals, its application to corporations has faced legal and technical challenges, forcing fintech firms to rely on outdated data retrieval methods now expired. The proposed temporary solution designates senior signatories authorized to approve data access and extends the transition period.
The second bill concerns corporate governance reforms for publicly traded companies without controlling shareholders, representing about 15.7% of Tel Aviv Stock Exchange firms, including major banks and Teva. It mandates a majority of independent directors to strengthen oversight and protect public investors’ interests, alongside special approval requirements for significant shareholder transactions. Failure to pass these bills before the Knesset dissolves means they must restart the legislative process after elections, with uncertain prospects due to opposition resistance.
