In 2018, the percentage of debtors among Arab citizens was 35% compared to 10% among Jews. In 2021, the percentage of debtors among Arab citizens will drop to 20% and among Jews to 7%, despite the decrease the gap between Jews and Arabs remains the same, and the nature of the debts remains different. This is according to a study by the Adva Center and the “Daf New” association.
This fact indicates the poverty in which many of the Arab families live. Along with the difference in the proportion of debtors, there is also a difference in the nature of the debt. While among the Jewish population a significant portion of the debt is housing mortgages, among the Arabs most of the debt is consumer loans, loans that carry a higher interest rate.
About 19.5% of the Jews who were debtors in 2012, remained debtors ten years later, in 2022. Among the Arabs, this rate is 35%. In other words, more than a third of the Arab debtors carry an ongoing debt, which they are unable to repay. In 2020, it was reported that 6.3% of the non-Orthodox Jewish debtors were behind in loan repayments (7.2% of the ultra-Orthodox), and in the non-Jewish public it was 14.9% of the debtors.
Comparison table between Jewish and Arab debtors (photo: Edva Center)
A surprising figure is the lack of correlation between the size of the debt and the length of time to repay it. This lack of correlation is explained by the researchers by the fact that the Arab population is excluded from the credit market and suffers from low availability of financial services.
The popular recommendation for dealing with the problem is to increase the financial inclusion of the Arab society and its integration into the bank credit market, but the study brings up a surprising figure regarding the state of the Arab society: in the years 2012-2022, 36,000 execution procedures were opened in the Arab settlements, about a third of all the procedures in these years for 21% of the population, and on For every one insolvency procedure (bankruptcy) in the Arab communities, 2.2 such procedures were opened in the Jewish communities, which are about 78% of the population in Israel.
When a person falls behind on debt repayment payments, an enforcement procedure is opened against him, meaning that the state collects the debt from the person. In such a case, the debtor can initiate an insolvency procedure, in which he receives a time-limited payment arrangement according to his financial capacity. At the end of the procedure, the debtor will be required to repay part of the debt or his debt will be written off. Despite the high proportion of Arab citizens among the debtors and among those against whom enforcement actions are taken, some of them are in small insolvency proceedings.
According to the researchers Dr. Miri Endblad-Savg, Max Grubman, and Dr. Yuval Livnat, the gap was due to the fact that in most years the debtor himself was the one who was required to initiate the insolvency procedure, a process that requires trust in the state institutions and a high level of financial literacy. To this end, in 2015 the state enacted a temporary order which in 2018 became the “Insolvency and Economic Rehabilitation” law, which facilitates the initiation of insolvency proceedings and also allows the registrar in execution to initiate such a procedure.
Despite the change, the research data show that the law did not significantly improve the debtors’ situation. Precisely in 2018, there was a sharp decrease in the number of insolvency procedures opened and a moderate increase in the following years. The researchers believe that the problem lies in the implementation of the law by the enforcement division and poor training of the officials. Another explanation is the low awareness among the population of the law.
Along with this, the researchers point out that the very system of bank loans “imprisons” the disadvantaged population and the Arab population in particular in a constant debt trap. This is because from the beginning the repayment ability of the Arab debtors is low due to their low income compared to their Jewish counterparts, whose income is 4.2 times higher in insolvency proceedings, and in a period when the interest rate is high the situation is even worse.
Therefore, the researchers call for credit to be made accessible to the underprivileged through a system of loans from non-profit social organizations, or low-interest, supervised loans like the Post Bank.
“The data show clearly: the Arab population in Israel suffers from overrepresentation in everything related to economic difficulties, debts and enforcement procedures,” says the study’s editor, Dr. Miri Andblad-Sabag. , which are intended to enable economic rehabilitation for debtors, protect Arabs less.”
“In the last 15 years, the debts of households in Israel have grown to illogical dimensions of about 230 billion NIS, and the number of families that have fallen into insolvency has increased by 700%,” says Tomer Rabinovitch, CEO of Daf Hadhad. “The state fails to rehabilitate those who have reached economic collapse and they return again and again to the cycle of debt, when in Arab society the situation is much worse, when consumer credit is mostly provided by private parties, some of them rather dubious parties, and when the state does not offer any economic rehabilitation solutions. If the Minister of Justice does not wake up in time and budget for a solution to the debt problem in Arab society – this could blow up in all of our faces.”
