The Treasury has announced increased competition in the general credit market

The management and boards of the banks in Israel are apparently unhappy tonight, after the Ministerial Committee on Legislative Affairs today approved two laws promoted by Finance Minister Israel Katz, regarding the opening of competition in the credit market currently concentrated at the banks, in addition to the law promoting the fintech sector. The fintech, which is called the Sandbox Law, in the language of a sandbox, will allow for regulatory flexibility and balance the playground.

“The credit market for households and small and medium-sized businesses in Israel is a highly centralized market that is almost completely controlled by the banks,” the finance ministry said in a statement. “One of the main reasons for this is that banks ‘funding sources are currently cheaper than non-bank lenders’ funding sources.”

According to the announcement, the amendment will allow lenders to diversify and expand the sources of financing for the purpose of providing credit and thus it may lower financing costs and allow these entities to compete in the banking system.

Beautiful title – but because of the election it will not happen in practice
Sounds very nice, but in the finance announcement they ‘forgot’ that the State of Israel entered a fourth election campaign in about two years, and the actual meaning is that the legislation will most likely not be completed before the election. The next Knesset will then have to start the legislative process anew, assuming that the next finance minister will also want to advance the issue again. In short – this is a beautiful title but results are not expected to be in the field soon.

And back to the Treasury announcement
In any case, according to the draft law, it will allow large non-bank lenders who meet the conditions to increase the debt ceiling through the commitment certificates from NIS 5 billion to NIS 15 billion and also raise debt through commercial securities within the limits set by law.

“This will allow lenders to significantly increase their cheaper sources of financing and reduce dependence on the banking system,” it said. “In addition, various restrictions will be removed regarding the collection of promissory notes from all non-bank lenders. These restrictions limited the business conduct of the non-bank lenders and in fact prevented some of them from raising debt through promissory notes.”

The second proposal passed today is the bill to encourage the development of financial technology in Israel (the “Sandbox Law”), which according to the Ministry of Finance will help fintech companies operate in Israel and lead to improved financial regulation in Israel.

“The bill is intended to enable the establishment of a unique program – a regulatory playground (” Regulatory Sandbox “), and will constitute a significant step in increasing competition and advancing technology in financial services in Israel,” they wrote.

The proposed plan is based on the conclusions of an inter-ministerial team coordinated by the Ministry of Justice and the Ministry of Finance and included representatives from the Securities Authority, the Bank of Israel, the Capital Market Authority, the Anti-Money Laundering and Terrorist Financing Authority and the Tax Authority.

“The program establishes an innovative experimental environment in Israel in cooperation with all financial regulators in Israel to support the activities of advanced technological financial entities (fintechs) in Israel,” it was written.

“The regulatory playground will allow regulators to give regulatory relief to companies participating in the program while hedging risks and thus make it easier for fintech companies to try their innovative products in the Israeli market and benefit consumers. In addition, each company participating in the program will be accompanied by financial regulators. The plan for the company’s activities, “they concluded.