Israeli Parliament Approves New Credit Data Repository to Save Small Businesses 1.5 Billion Shekels Annually

The Israeli Knesset has passed in its second and third readings a new law establishing a credit data repository for small and medium-sized enterprises (SMEs). The legislation, initiated by the Ministry of Finance in collaboration with the Ministry of Justice and the Bank of Israel, aims to address structural inefficiencies in the SME credit market. Currently, about 92% of SMEs obtain credit from banks, with 83% relying on the bank where they hold their accounts, a phenomenon known as the "captive customer," which results in high financing costs.

According to the Ministry of Finance, the new credit data repository is expected to save SMEs at least 1.5 billion shekels annually and reduce their credit interest rates by at least 1%. These savings are anticipated to benefit the general public by lowering the cost of living. The law authorizes the Governor of the Bank of Israel to establish the repository, which will collect credit information from banks, credit card companies, and public authorities regarding SMEs' credit commitments and repayments.

Credit bureaus will then be permitted to share this data with lenders and provide services such as credit reports and ratings. The main goal is to increase competition in the SME credit market and reduce banks' information advantage. The law also shortens the registration period for negative credit data from three years to one year, facilitating quicker recovery for borrowers. Additionally, in emergencies, the credit data commissioner can immediately exclude negative data to protect borrowers' credit conditions, a provision relevant given Israel's current security situation.

This initiative builds on the successful experience of the household credit data repository, which Bank of Israel research found reduced information gaps, increased market players, and lowered credit costs. The law is the result of close cooperation between the Bank of Israel, the Ministry of Finance's Budget Department, and the Ministry of Justice, aiming to create a more competitive, efficient, and fair credit market for SMEs. Further updates on the repository's implementation will be provided in due course.