Gray market loan sharks are charging annual effective interest rates of up to 554 percent on loans at the public's expense, according to a research study conducted by the Center for Academic Studies. "Non-banking financial bodies in the gray market are taking advantage of the dire financial situation of private individuals and businesses who have limited sources of financing by charging enormously high interest rates on loans much above the limit determined in the Non-bank Loans Arrangement Law of the Bank of Israel," accountant Zohar Feldboy, who headed the study, told The Jerusalem Post. "In the current climate of a slowdown in the rate of economic growth, we could be seeing more people in need of non-bank loans, boosting the growth of the gray market." The gray market refers to private loan companies that offer loans to borrowers who are not in a financial position to receive bank loans. According to the Non-bank Loans Arrangement Law, which regulates the granting of credit on the gray market, the maximum cost of such a loan is two-and-a-quarter times the average cost of unindexed credit granted to the public by the banks. For this purpose, the law states that the Bank of Israel needs to publish this average cost each month. The average annual interest rate - comparing the seven largest banks - that serves as a basis for interest on the gray market was 7.15% in January. The study was conducted during March among 25 non-banking loan providers in Tel Aviv, Jerusalem, Haifa and Beersheba. It revealed that the nominal and effective interest rates charged were not in compliance with the law and an indicator for the severe economic difficulties faced by borrowers, Feldboy said. In response to the findings, the Bank of Israel said it was not responsible for the inspection and supervision of the law. The Finance Ministry was not available for comment. One of the loan providers featured in the study as an example of this trend is "Inter Financial Services," which offers a NIS 10,000 loan on monthly payments of NIS 2,600 over a six-month period; that adds up to NIS 15,600. According to calculations conducted by Feldboy, the loan is provided on a nominal monthly rate of 14.4%, an annual nominal rate of 172.8% and an annual effective interest rate of 402%. The effective rate, or the annual equivalent rate, is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest. The study found that at the same place, a NIS 10,000 loan taken out over a period of 12 months on monthly repayments of NIS 2,000 would be charged at an effective annual interest rate of 554%, an annual nominal rate of 203.3% and a monthly rate of 16.94%. The "cheapest" loan in relative terms, according to the study, was the "Loan Bureau," located in Jerusalem; it offers NIS 10,000 loans for a period of 12 months on monthly repayments of NIS 1,125, which translates into a monthly nominal rate of 4.95%, annual nominal rate of 5.94% and an effective annual rate of 79%.