JERUSALEM, Israel—This country’s banking system is currently not equipped to make credit available to poor and underserved populations, according to a study by the Milken Institute.
“Israel’s existing banks will not solve the problems of financial exclusion,” said the report on increasing capital to underserved markets.
The Jerusalem Post reported that about a fifth of Israelis are poor, and have trouble obtaining credit through loans or building up good credit through savings accounts. Approximately 40%-50% of Israelis live in “asset poverty,” meaning they don’t have enough available assets to cover three months of basic needs.
“They navigate a world of financial exclusion, often paying dearly for the ‘informal’ credit options that remain open to them. Theirs is a precarious subsistence that they pass on to their children,” the report said.
“Just a fifth of bank loans go to small businesses. The government could provide these smaller banks with partial deposit insurance to fend off fears that people would lose their savings in a bust,” the Jerusalem Post reported.
The report recommended several solutions that would require financial legislation and reregulation to help Israel’s “under-banked” population.
Among the report’s recommendation was increasing small, community- based savings institutions, such as credit unions and community banks, which could eventually scale up and grow. Another proposal called for promoting savings accounts by advancing special accounts for kids in low-income families, and possibly incentivizing them with matching savings from the state of philanthropy.
“These new financial institutions will target a previously unserved market, and the demand in this market must be allowed to ‘pull’ the innovation of new and appropriate services,” the report stated. “Eventually, these services could include savings, credit and financial services geared to increase the financial capacity of the customers.”