Israeli Parliament Approves Credit Data Repositories to Boost SME Lending Competition

The Israeli Knesset approved a law overnight establishing credit data repositories for businesses, aiming to increase competition in the credit market and reduce the cost of living. The legislation targets structural failures in the credit market for small and medium-sized enterprises (SMEs), where currently about 92% of SMEs obtain credit from banks, and 83% rely solely on their primary bank. This situation creates "captive customers," leading to higher financing costs.

The new credit data repository will be a centralized, secure system compiling financial behavior and payment history from banks, credit card companies, and government authorities. It will provide lenders with a comprehensive risk profile of borrowers, enabling competitors to offer more attractive credit terms based on accurate risk assessments. This transparency is expected to save SMEs at least 1.5 billion shekels annually and reduce their interest rates by at least 1%, benefits that could extend to the general public by lowering living costs.

The law also shortens the period for recording negative credit data from three years to one, facilitating quicker recovery for borrowers. Additionally, in emergencies, the credit data supervisor can immediately exclude negative data to protect borrowers’ credit conditions. The initiative builds on the existing household credit data repository, which has already enhanced competition and reduced credit costs by narrowing information gaps among financial institutions.

The legislation was developed collaboratively by the Bank of Israel, the Ministry of Finance’s Budget Department, and the Ministry of Justice. It seeks to balance increased competition and lower credit costs with financial system stability and privacy protection. The law marks a significant step toward a more competitive and efficient credit market for Israeli SMEs.