Israel Approves Business Credit Data Repository to Boost Competition and Lower Interest Rates

On the eve of the Knesset's dissolution, Israel approved the establishment of a business credit data repository, a financial reform hailed by the Bank of Israel as the most significant in the recent budget. The law, promoted by the Ministry of Finance, Bank of Israel, and Ministry of Justice, aims to increase competition in the business credit market, potentially reducing interest rates by at least 1% and saving small and medium-sized enterprises (SMEs) at least 1.5 billion shekels annually, thereby helping to lower the cost of living.

The credit data repository is a centralized, secure system that collects ongoing financial behavior and payment history data from various sources such as banks, credit card companies, and government authorities. This information includes existing loans, credit limits, and repayment performance. With borrower consent, financial institutions can access accurate risk profiles, eliminating the current "information asymmetry" where only the account-managing bank knows the client's history. This opens the market to competitors offering better terms based on true risk profiles, addressing the structural issue of SMEs' heavy dependence on banks.

Currently, SMEs constitute about 55% of Israel's business output and 60% of employment but receive only 27% of total credit. Over 92% of these businesses borrow from banks, with 83% relying on their primary bank, making them "captive clients" who face higher financing costs due to lack of alternatives. The new law also shortens the registration period for negative credit data from three years to one, facilitating quicker recovery and credit access, and allows immediate exclusion of negative data during emergencies to protect borrowers.

This reform follows the successful 2019 launch of a household credit data repository, which empirically reduced credit premiums and increased competition in non-bank auto loans. Bank of Israel Governor Prof. Amir Yaron praised the expansion, expecting it to ease new entrants' market access and lower business credit costs. Industry leaders like Eyal Ben-Chaim of Isracard anticipate similar transformative effects for business credit.

However, three other economic bills awaiting approval were left pending, including a key law regulating hedge funds in trust, which currently operate under a temporary order expiring in 2027. Without this law, billions of shekels invested by the public face legal uncertainty. Additionally, reforms related to open banking and corporate governance for public companies without controlling shareholders were not approved. The opposition has allowed Knesset sessions during recess to pass non-controversial legislation, leaving some hope these bills might still be enacted.