After two and a half years of complex committee discussions in the Knesset, the Gemach Law was passed recently just before the dispersal of the Knesset.
A Gemach, which is the acronym for "Gemilut Hassadim" (acts of loving-kindness), is a service where one can enjoy useful items or services, when in many cases people may borrow and then return the items. Many Gemach services are free and others require a symbolic payment to cover expenses. The new law relates to Gemach services that offer financial loans.
The law paved the way, for instating CRS regulations and subjecting the Gemachim to the Prohibition on Money Laundering Law. The law intends to regulate Gemachim as interest-free financial institutions for deposit and credit, authorized by the State and subject to government supervision. The oversight will be managed by the Capital Market Authority.
Over the past two years, a team of experts from the Haredi Institute for Public Affairs worked closely with representatives of Gemachim and with relevant government officials in order to advance policy that would best fit the reality of the Haredi community as well as the government. The effort was led by Professor Yoram Margalioth, law professor at Tel Aviv University and Senior Fellow at Haredi Institute for Public Affairs. The law, said Margalioth, is an unprecedented example of applying civic policy to a communal institution while genuinely taking into consideration the special characteristics of that specific population as well as the welfare of society at large.
According to Margalioth, if not for this law, the Gemachim would have been harmed, as the banks would not allow them to continue running unregulated accounts because times have changed and there is great international pressure to combat money laundering. "The law in its previous version," said Margalioth, "could have caused the catastrophic collapse of many Gemachim to the detriment of countless low-income Haredi households. It would have also damaged any trust between the Haredim and the government. Adapting the law to reality was not a simple feat. The Haredi Institute united the Gemachim directors and led the negotiations vis-à-vis the government.”
The Haredi Institute for Public Affairs presented the following FAQ list to explain the law:
What did the Gemach Law achieve?
For the first time, the gemach system, on which many Israelis rely for cost-free credit, is a government-recognized financial institution. Until now gemachim operated in the informal economy.
How big is Israel’s gemach economy?
The size of the gemach economy is not publicly known, but it is estimated in the billions of shekel.
What are the key aspects of the law?
The new law classifies gemachim in three ways. With deposits under NIS 1 million, a gemach is essentially unregulated. With deposits between NIS 1 million and NIS 8 million, a gemach is partially regulated. With deposits above NIS 8 million, a gemach must be registered as a nonprofit organization.
Is a gemach required to keep large reserves on hand, the same way a bank is?
The law recognizes that the typical gemach has over 99% repayment on loans, and only requires it to have 5% of total deposits, or NIS 5 million in liquid funds.