The Interministerial Team to Formulate a National Program to Increase Financial Inclusion Report
The joint team to formulate a national plan to enhance financial inclusion, headed by Deputy Governor of the Bank of Israel Mr. Andrew Abir and the Deputy Attorney General (for Civil Affairs) Adv. Carmit Yulis, is publishing the concluding report on its work today. The team was appointed by the Minister of Justice, Minister of Social Equality, and the Governor of the Bank of Israel in order to comprehensively examine the state of financial inclusion in Israel in all its aspects, understand where gaps in financial inclusion are situated evaluate their scope, and to formulate effective policy recommendations.
Financial inclusion means creating equitable access to financial services at reasonable cost to the entire population.
Due to the considerable importance of the financial services (payments, credit, savings, insurance, etc.) in a modern economy, financial inclusion is important both to the welfare of the individual and to overall welfare. Financial inclusion can help in creating conditions for extracting individuals from poverty, reducing inequality, and decreasing the shadow economy as well as economic and general crime. It will contribute to citizens being empowered and creative. Financial inclusion encourages business opportunities and enhances economic growth.
In general, the level of financial inclusion in Israel is high, and is similar to that of other advanced economies. In such economies, the discussion on the topic generally focuses on specific population groups, among whom the level of inclusion has been identified as lower than the overall population. The main population groups in Israel among whom financial-inclusion gaps were observed in the report are Arab society, the ultra-Orthodox society, and disadvantaged populations from a low socioeconomic level. In this regard, the team worked in several ways. The team held conversations and engaged in collaborative processes with entities from the public sector, the private sector, nonprofit organizations, and social activists; it conducted surveys among the public and research via focus groups among the relevant population groups; international comparison, and extensive quantitative research.
Outlining the qualitative and quantitative findings indicates that the most notable gaps in financial inclusion in Israel are focused mostly in Arab society in basic financial products. Thus, for example, it was found that compared to other population groups in Israel, in Arab society there is a lower bank account ownership rate , a lower usage of advanced means of payment (e.g. credit and debit cards) rate, a lower mortgage taking rate while on the other there is a higher percentage of borrowing through consumer loans. Although the level of financial inclusion among ultra-Orthodox society generally is not low, and this can be seen for example through a high bank account ownership rate or mortgage taking rate , in certain areas financial inclusion gaps can be found in ultra-Orthodox society as well. For example, it was found that in ultra-Orthodox society there is a high preference for use of cash, a low rate of digitization, and a share of formal savings that is lower than among the Jewish non-ultra-Orthodox society.
The team identified several factors that serve as a barrier to financial inclusion in Israel, including language barriers, barriers deriving from low levels of digitization, barriers originating in a low level of financial literacy, barriers related to the credit risk level of the customers, and more. As each barrier is reflected in a different magnitude among the various population groups, a range of courses of actions to increase financial inclusion is required while adjusting the policy steps to the target population accordingly.
In correspondence with the findings the team formulated recommendations in five major areas:
Enhancing access to credit, increasing access and use of advanced means of payment, a multiyear plan for financial education in Israel, removing cultural, language, and religious barriers to financial inclusion, and other recommendations including, among other things the need to continue monitoring the development of financial inclusion in the coming years.
The team is of the opinion that by implementing the range of recommendations, there will be a broad response to the various barriers to financial inclusion, and that through these policy recommendations, the gaps in financial inclusion among the various population groups in Israeli society will be reduced.
In this team’s work, the issue of financial inclusion was examined for the first time by State entities in an orderly and structured manner, and it includes practical recommendations for action. Continued work is needed in this area, among other things in view of the changing reality.
Deputy Governor of the Bank of Israel Mr. Andrew Abir: “The financial system is one of the most important infrastructures in a modern economy, and it must serve all the citizens of the State and provide a response to their varied needs. Israel benefits from a financial system that is stable, robust, and advanced, that serves households and businesses well. The report shines a spotlight on the places in which financial inclusion is not complete and improvement is needed in order to achieve the goals set in the Team’s vision. The implementation of part of the recommendations can begin immediately while other parts will take a longer time, but beyond the importance of the recommendations, the importance of the report derives from the broad factual and research infrastructure it presents, and the contribution it will make to the public discourse on these issues.”
Deputy Attorney General (for Civil Affairs) Adv. Carmit Yulis: “An important goal from our perspective is to provide a response to all population groups and to make efforts to make financial tools accessible to all households. This is particularly the case with regard to disadvantaged populations for whom the financial system is not accessible. The Team’s work is a big step forward in this regard, as the report lays out a broad factual infrastructure, through extensive work that has not been done in the past, and it exhibits practical, implementable recommendations in these issues. We hope that the implementation of the recommendations will lead to significant progress on the issue and to the inclusion of additional population groups in the services provided by the financial system, as part of the broad interest that the Division promotes with regard to making the judicial system accessible to specific population groups.”