Israeli Parliament Approves Business Credit Data Repository to Boost SME Lending

In a last-minute decision before the Knesset's dissolution, the Israeli parliament approved a law establishing a credit data repository for small and medium-sized enterprises (SMEs). The legislation passed in its second and third readings overnight and aims to centralize financial information such as payment records, credit history, and liabilities of SMEs. This database will enable financial institutions, including non-bank lenders, to better assess the risk profiles of potential borrowers.

The initiative seeks to replicate the success of the consumer credit data repository launched in 2019, which increased the market share of non-bank credit providers from about 11% to 23% within six years. Research by the Bank of Israel showed that the "captive customer" premium, the interest rate gap between customers tied to a single bank and those with diversified credit, was reduced by one-third and nearly eliminated after 4.5 years. Given the higher concentration in the business credit market, the expected impact of the new repository is anticipated to be even greater.

The Ministry of Finance stated that the reform is expected to save SMEs at least 1.5 billion shekels annually and reduce their credit interest rates by at least 1%, benefits that will extend to the general public and help lower the cost of living. The Bank of Israel welcomed the legislation as a significant step to enhance competition in the business credit market, improve financing accessibility, and increase credit allocation efficiency.

Bank of Israel Governor Professor Amir Yaron emphasized that the new repository is a structural move to strengthen competition and expand financing access for SMEs. He noted that expanding data sharing will facilitate the entry of new market players and reduce financing costs, mirroring the positive effects already seen in household credit markets. The business credit data repository is part of broader infrastructure reforms promoted by the Bank of Israel to remove financial system barriers and improve customer welfare.