Competitiveness in the retail and consumer credit market has improved significantly, but banks are still the almost exclusive source of credit for small and medium-sized businesses and individuals, according to a joint report recently published by the Credit Market Competition Commission.
Today, the number of entities operating in the non-bank credit market for households is limited, and mainly includes credit card companies.
Insurance companies operate in the market by providing loans against funds held by the insurance company, such as a study fund or pension.
In addition, there are individual entities that offer credit to households that are never the vehicle.
According to data from the Association of Credit Companies in Israel, in 2021 the non-bank credit market in Israel will be NIS 25 billion, while in 2015 it was less than NIS 10 billion.
Despite the impressive progress of the non-banking market, the banking system holds a kind of monopoly on the credit market.
As of the end of 2020, the total volume of credit to households was NIS 194 billion - with the banks weakening 88% of it.
An additional 10% belonged to institutional investors (mainly insurance companies and investment houses), and non-bank credit enjoyed a share of only 2%.
Chairman of the Association of Non-Bank Credit Companies Micha Avni,
In the area of mortgage credit, worth 417 billion, banks' control is even greater (95%) while non-bankers again hold only 2%.
Credit for large businesses is less than 1%, and only credit for small and medium-sized businesses is slightly improved, with 4% of credit provided by non-bank or institutional entities.
Eran Horowitz, CEO of the fintech company Credit 24, which develops a technology platform for providing credit based on artificial intelligence, explains the need for non-bank credit: "Banks are subject to different regulations from non-bank entities, so there are cases where the bank can not or "I do not want to offer a credit solution to a person or a company, whether permanently or at a certain point in time," Horowitz explains.
"The flexibility of the non-banking entities, and in some cases the interest rates in which the companies operate, make it possible to offer credit at a higher level of risk, but there are non-banking entities that will allow the customer to get a bank interest loan. In addition, these entities have quick credit."
Micha Avni, Chairman of the Association of Non-Bank Credit Companies and Founder and CEO of the Peninsula Group (the pioneer of non-bank credit in Israel, established in 2004), analyzes the reasons for the flourishing of non-bank credit: "They worked very hard to prevent competition. Over time, politicians and economists began to put pressure on banks to compete, and in recent years balancing laws have been enacted."
What was the purpose of the legislation?
Avni: "The market was not regulated, let alone hacked. A person wanted to take a loan other than the bank, but could not know if the person offering him the deal was a legitimate company that could be trusted or a dubious factor. So it was decided to regulate the industry. "By the Capital Market Division of the Treasury. Today a consumer knows that what is offered to him is what he will receive."
According to Avni and Horowitz, the regulatory measures taken so far are positive, but certainly not enough.
"The non-banking entities are still discriminated against compared to the banks, not least because of the Bank of Israel. For us to be able to give credit, we need money, but we cannot raise bonds and credit like the banks, because of historical distortions."
What are the distortions?
"In the past, if providing credit and raising bonds on the stock exchange - is necessarily considered a bank, then a license from the Bank of Israel is required. This puts you on an impossible regulatory path for small entities. "It is not in the arrangements law now, but in the discourse of the Ministries of Finance and Justice. I hope the law will pass soon."
And why is the Bank of Israel not helping you?
"Over the years, the Bank of Israel has been the organizer and executor of the banking monopoly. It allows and even pushes for the banks to offer almost identical terms, a kind of legal cartel. They will say they keep the banks stable, but what about competition? It's a bit neglected."
Credit 24 CEO Eran Horowitz, Credit 24
And there is also the issue of transparency and cooperation: the built-in advantage of banks over non-banking, in that they hold a great deal of information about the customer by virtue of their monopolistic status until recently.
This way they can assess the level of risk in a more informed way and submit more accurate bids.
The government and the Bank of Israel are promoting "open banking" to oblige the banks to share their information with their competitors as well - but at this stage only with small banks or credit companies - and not with non-banking entities.
Avni: "The Bank of Israel says we are not mature enough, but is preventing us from growing. In the meantime, the banks and credit cards are opening a gap on us."
The Bank of Israel stated: "A body interested in raising money through deposits from the public is invited to submit an application for a license to supervise the banks, and we welcome this.
The Bank of Israel emphasized the promotion of competition between non-banking entities and banks, and established a credit database, which includes non-bank credit entities.
The Bank works to promote open banking, and promotes an open financial system. "