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At 11th Hour, Gafni Passes Gemach Bill with Finesse

Last Tuesday, as the 20th Knesset came to its premature and long-prophesied end, the deserted plenum was not the place to be. A few conscientious MKs were there, passing bills one after another — some on their phones, the others knee-deep in political intrigue.

The real action was elsewhere. The right was in shambles as Naftali Bennett and Ayelet Shaked had just bolted Bayit Yehudi, the national-religious party, leaving it saddled with a $5 million debt. Labor’s Avi Gabbay was continuing the left’s honorable tradition of fratricide by sacking ally Tzipi Livni live on camera. And Israel’s (mostly imaginary) center ground was disappearing (again) as Moshe Kahlon’s Kulanu Party hemorrhaged members. In short, lawmaking was the last thing on the minds of most politicians.

But over in the Finance Committee room, some members of the government were actually engaged in governing. Degel HaTorah lawmaker Moshe Gafni was putting on a virtuoso 11th-hour display of parliamentary prowess as he sought to pass the so-called “gemach law.”

Despite the heimish-sounding name, this legislation was born out of Obama-era US regulations known as FATCA (the Foreign Account Tax Compliance Act). These rules obligated overseas financial institutions to report foreign assets held by American citizens to US tax authorities. The gemachim were caught up in the dragnet of Israel’s compliance efforts.

According to Professor Yoram Margaliot of the Haredi Institute for Public Affairs, which took a leading role in shaping the law, “Finance Ministry officials viewed gemachim as aiding money laundering.” They sought to regulate the gemachs like banks, as well as outlaw cash loans in excess of 11,000 shekels. Taken together, these efforts would have crippled the “gemach economy,” which many in the religious sector rely on instead of bank loans.

Thus was born the “gemach law,” to bring Israel’s free-loan economy — estimated in the billions of shekels — out of the shadows, giving the humble gemach the status of a recognized financial institution. In a blend of statesmanship and showmanship, Moshe Gafni demonstrated why he is one of the Knesset’s most experienced lawmakers as he bullied, joked, and negotiated with a revolving cast of MKs and bureaucrats to nurse the bill across the finish line.

Walking into the Finance Committee feels like entering the court of a minor potentate. Moshe Gafni sits at the head of a long table, flanked by trusted advisors on one side and respectful MKs on the other. Further down the table are the best and brightest of Israel’s bureaucrats. At the other end is a group of representatives from Israel’s leading gemachim, the concern etched on their faces reflecting how critical this moment is for their institutions.

The committee’s legal advisor wends her way through the lengthy bill, reading out paragraphs and waiting for objections. The Economy Ministry’s balding legal advisor raises his hand to object, and begins a laborious explanation of why the gemachim should have to report loans smaller than currently spelled out in the proposed bill.

“Todah,” booms Gafni, making it clear he was anything but thankful for the interruption, and he overrules the objection.

But the Finance Ministry’s team is not so easily put off. Young, dressed in the casual chic that passes for formal in the Knesset but would be Sunday outing gear anywhere else, many of them sport knitted kippot. The exchange between them turns into something of a Bnei Akiva versus Bnei Brak battle of wills.

“Kevod yoshev rosh,” begins a civil servant, addressing Gafni. “The Finance Ministry won’t agree to the law in its current form. If you don’t include [unintelligible technical reference], we’ll have to pull it.”

Gafni knows a threat when he sees one, and responds in kind. “If this bill doesn’t make it through today, the moshavim in the periphery won’t be funded either. Do you really want to have on your head mass economic collapse because of your obstinacy?!”

Seizing his opportunity, Yeish Atid MK Miki Levy attacks from Gafni’s left flank. With a police service background, he’s obviously equally comfortable in the kitchen.

“This bill is half-baked. I’m not passing it today!” he declaims, waving his arms impressively.

Seeking to break the stalemate, Gafni tells the gemach representatives and bureaucrats to meet quickly outside and find a compromise. They exit, and a functionary starts to read the next portions of the bill as the room descends into discussion.

The Knesset media staff lurk toward the back of the room, since this session is being broadcast live over the Knesset Channel. If the media is after ratings, there’s a good reason the camera crew are here: Gafni’s committee meetings provide one of the biggest shows in town, and they’re a reliable source of headlines.

The media guy knows what he’s looking for: “In the next ten minutes, things are going to get very tense,” he predicts to Gafni’s spokesman. “Then we’ll get a good clip to broadcast.”

Next up is the Welfare Ministry spokesman, but his thunder is stolen by the arrival of the Likud fixer, the ever-ebullient MK David Bitan. He enters surrounded by a coterie of aides and admirers, and after the requisite backslapping he takes a seat. His first job seems to be to placate MK Miki Levy, who is still totally opposed to the bill. More testy exchanges ensue between Team Gafni and Team Bureaucrats over the details. Hallway negotiations concluded, the gemach reps and their Finance Ministry counterparts return.

“In light of the compromise we’ve reached, the Finance Ministry won’t withdraw the bill,” says a Finance rep.

Moshe Gafni is ready: “Okay, now we’re going to vote,” he announces. “But before we do, I have something to say.”

The room goes quiet as everyone prepares for the endgame.

“We’ve worked for two and a half years so that the gemachim are for the first time recognized by the government as financial institutions. I know we will be criticized by some people for how we’ve done it. But if this doesn’t pass, it will be a historic missed opportunity.”

As each subsection of the bill is read out, Moshe Gafni’s famously stentorian voice rings out like a gabbai selling mitzvos in Lederman’s: “Who’s for, who’s against, and who abstains?”

Hands go up and down, and on the strength of this old-fashioned method, Israel’s legal system now recognizes the ancient gemach as a part of the financial system.

Fittingly, this only-in-the-Knesset scene ends with an all-party Minchah in Moshe Gafni’s offices — with David Bitan as a tzeinter, and your faithful correspondent press-ganged as the chazzan.  —

Gemach Law FAQs

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.

Source: Haredi Institute for Public Affairs.

Originally featured in Mishpacha, Issue 743


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