A new company that aims to establish the country’s first credit union won precedent-setting approval from the Israel Securities Authority on Monday to raise money from the public without going through the expensive and time-consuming step of publishing a prospectus, as companies are typically required to do before raising funds.
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The nonprofit credit union, or cooperative bank, will be run by Ofek Group and will accept deposits only from those who purchase a certificate of membership for NIS 3,000. In return, it will charge its member depositors minimal fees and low interest rates on loans, as well as providing full transparency regarding salaries for its executives and other costs.
Ofek Group said it planned to begin fund-raising in the next several weeks, with the goal of raising a total of NIS 90 million from 30,000 members. Although shares are not generally sold online, Ofek plans to launch a website to sell shares in the credit union. The proceeds will be used to provide the new bank’s core capital.
Credit unions like the one Ofek envisions would be in line with the 2012 Zaken committee recommendations for increased competition in banking. The Israeli banking sector is dominated by five big banks, which have come under fire for paying excessive salaries and charging high fees.
Ofek’s founders, who are led by Doron Shorer, a former Finance Ministry capital markets chief, are aware they are taking on a risky venture and that they must convince the public that a new and untried form of banking (in Israel, at least) can not only succeed but provide services at lower fees than commercial banks. Ofek is primarily targeting Israelis who dislike banks and prefer the idea of a cooperative, including members of kibbutzim and labor unions.
In its pre-ruling request to the securities authority, Ofek said it intended to provide low-cost, high-quality retail banking services for individuals, families, and small and medium-sized businesses. The company said it would provide online services and mobile applications, and will have both mobile and stationary service points. Initial services to be offered by the credit union will include loans, short- and long-term savings accounts, checking accounts and credit cards.
Ofek overcame the obstacle by agreeing not to pay dividends to credit union members or allow its shares to be transferred, unless they are bequeathed by a deceased member. If the credit union were dissolved, its shareholders would receive the value of their shares indexed to inflation, with any remaining capital donated to charity. With these protections in place, the securities authority decided a prospectus was not needed to protect the public.
The new venture still faces more obstacles before it launches operations. Israel lacks regulation governing credit union operations, although the Bank of Israel's banks supervisor is in the early stages of adopting U.S. rules on credit unions. Ofek won’t be able to open its doors until these are in place, a process it says could take up to two years.
All the same, it plans to begin raising money now and is committing to put NIS 2,000 of every NIS 3,000 it raises in a trust that will be opened only when it formally begins operations.