customers are in this market. there is apparently a wide variety of customers that use the financial services of the gray market. these are mainly households and small businesses, to whom the banking system or the nonbank institutional system are inaccessible from the outset, or those that have used up their banking credit facilities. examples of those who use the services of the gray market include restricted customers, those in bankruptcy, customers without sufficient collateral, borrowers in need of rapid and liquid money, and borrowers wishing to take out a loan under complete discretion for reasons both legitimate and illegitimate. the situation thus far is something that we recognize well from economics 101. there are forces of supply and demand that create the gray market, and some of that market may be a legitimate market that provides services complementary to the institutional system that cannot or does not want to be part of this market. there are also advantages, including increased public access to credit. in addition, the fact that the gray market exists and is developing shows to a certain extent that it is necessary. however, there are also problems and failures in how this market has developed in israel. the main problem in the gray market begins with the lack of regulation and supervision over activity in this market. the entities active in this market provide credit without regulatory supervision in relation to this activity or in general. the lack of supervision has a negative impact on borrowers in the gray market, first of all from a basic consumer standpoint. in contrast to the banking market, there is no consumer protection system for borrowers in this market. for instance, the banks have due disclosure obligations in relation to the terms of credit. for the most part, they are cautious in the provision of credit beyond customers ’ needs and repayment abilities, and there are fixed and regulated dispute settlement mechanisms. the banking supervision department also enforces consumer directives, and serves as the decider of disputes in many cases where customers have claims of improper activity on the part of the banks. just this week, we published the activity report of the banking supervision department ’ s public enquiries unit. the unit worked to clarify thousands of enquiries, brought about the repayment of more than nis 3 million to customers, and was able to provide systemic handling of a number of complaints where it turned out that the complaints did not only concern those customers who enquired about them. none of this exists in the gray market. advertisements about the terms for providing credit in the gray market often lack basic information the

see these first two groups – the banking system and the nonbank financial system – as institutional systems, the third group, which is the focus of this meeting today, offers an alternative financing system to the institutional system. this type of financing is referred to in israel as the gray market. the term “ gray market ” has negative connotations, although it should be noted that in and of itself, credit provision activity is not necessarily contrary to the law. there are legitimate – although insufficiently supervised – actors within the gray market, and in contrast, there are also criminal elements. the way in which this market has developed in israel is fraught with risks, including compliance risks, which i will discuss more later on. in israel, the alternative financing system is mainly offered by currency service providers, private and public companies providing credit services, and charitable organizations. in addition, another industry is developing, thanks to technological developments, that offers a financing model that brings borrowers and lenders into direct peer - 2 - peer contact. when we look at this phenomenon globally, we look at the banking system and at the nonbank system opposite it, referred to by the term “ shadow banking ”. perhaps this name is not so complimentary, but the vast majority of this system in the world is comprised of nonbank financial entities that are subject to various levels of supervision. there is a marked increase globally in shadow banking activity, which is made possible due to technological developments in the field, the high level of liquidity that currently exists in the markets, and against the background of increased regulatory restrictions imposed on the banks. regarding the gray market, there are no complete data on the volume of its operations or on its customers, which is one of the problems it presents. a survey conducted for the small and medium business agency in the ministry of the economy in 2010 shows that many small businesses have difficulty financing their operations, but that only 0. 4 percent gave a positive answer to the question of whether they use the gray market. it seems that this number is downward biased, since there is no bis central bankers ’ speeches complete information on credit provision or check clearance by currency service providers or charitable organizations. current estimates talk about a credit market of about nis 10 – 20 billion. in relation to the existing numbers in the banking system, the rates are very low. up to now, i have outlined the financial environment in which the gray market operates in israel. now i will try to answer the question of who the