Microfinancers warn Central Bank of return to 90s
The regulator wants to take the major part of business from microfinancing companies
The Central Bank continues attacking the activity of microfinance organisations (MFO): it has recently claimed it will fight against the growing popularity of payday loans – the population gets huge debts because of them. In answer, the microfinanciers who run the risk of being divested of the major part of their business warned about an upcoming growth of delayed payments and grey market. Realnoe Vremya tells the details.
Knockout for MFO
The regulator has been fighting against expensive and very risky loans for several years already. Last July it tightened reserve requirements for MFO again: they must add 100% interest for payday loans with a delay of more than 90 days.
The tightening wasn't instantaneous – microfinance companies were warned about it beforehand. To avoid shocks, the Central Bank gave them a transition period that lasted from 2014 to 2017. The regulation of assignment of interest was to increase gradually. Last year, market representatives persuaded the Central Bank to postpone the 100% fulfilment of the regulation but achieved nothing.
The Central Bank's current idea is more severe. Firstly, the regulator is going to restrict the size of payday loans to 10,000 rubles, secondly, to reduce the biggest term of such loans to 15 days, thirdly, to reduce interest rates to 1,5% in 2018, to 1% in July 2019 a day. Now the largest payday loan is 45,000 rubles. The maximum term is 2 months, while extra payment on such loans is limited to a threefold size of a loan.
The Central Bank explains its decision with the irresponsibility of MFO clients who, it thinks, assume unbearable responsibility. ''We face low financial literacy of the population. Citizens don't know how to calculate their risks, make financial plans. We think we need to introduce new restrictions,'' RBK cited Director of the Microfinancial Market Department of the Central Bank Ilya Kochetkov's statement.
Crimes and spoiled loan histories
Market players say the Central Bank's idea will dramatically affect not only MFOs but also the population if it becomes a reality.
''Such a fight against the profitability of microfinance business, from my point of view, won't lead to anything good. We need to consider the issue not only from a perspective of a specific MFO but from a perspective of the development of the sector. Quick money at high interest rates is demanded by the population, it is constant, and it can't be deleted by bans. In this case, a return to the 90s is expected. So-called ''black creditors'' who will grant the same payday loans will be back. But now it will be linked with crime,'' Director General of Money Funny Aleksandr Shustov warns. He says the very MFOs will become unprofitable, stop being interesting for owners and start leaving the market.
In Shustov's opinion, the popularity of payday loans among the population is reasonable considering that the Russians' real incomes have been reducing for several years in a row; people come to take microloans out to support the current consumption level. ''We can also say that MFOs assume a certain social function that not all sociologists notice: they are a target for swindlers who will shift their attention to the population and other financial institutions if MFOs stop existing. MFOs are a kind of filter for the people who try to take out a loan and who aren't going to pay for it beforehand. In this respect, MFOs separate banks and other financial institutions from this social occurrence,'' Shustov says.
''It's an unexpected offer of the Central Bank after which the whole market is in confusion,'' admits Director General of Eqvanta group of companies Yury Provkin. He says that the regulator discussed completely different plans with microfinanciers earlier, while its latest decision is ''new and inconsecutive''.
Provkin doesn't dare to forecast all changes that can take place in the market because of the Central Bank's decision. But something is already clear: MFOs will have to change their business model, refuse payday loans in favour of longer loans with instalments. Less technological companies that won't be able to adapt will leave the market, he says.
''The financial availability for clients will considerably reduce, and the share of the grey market will increase because people's demand for short loans won't disappear. Clients' payment discipline will significantly worsen, as the stimulus to pay off the loan on time disappears. It doesn't matter whether you will pay off the loan beforehand or with a 1-2-month delay with a fixed payment of 3,000 rubles. Loan histories of clients will worsen with the absence of an opportunity to prolong the term; information is given to the bureau of loan histories if already there is a delay of 3-5 days,'' Provkin adds.
Social problem
Payday loans account for 57,6% of all loans that MFOs granted in the second quarter of the last year. This segment is different from a traditionally big share of delay with high interest rates.
''The Central Bank's statement was a surprise for microfinanciers, while the new rules will become a shock – somebody will leave the business, other will have to get used to low profitability,'' says expert of the State Duma on financial markets Yan Art.
The MFO market was the most liberal, and it had been opposing interferences for a long time. This is why there was a leaning in the regulation of the banking and microfinance sector as time went by. Then the Central Bank levelled the burden. And Art thinks it's a correct approach. Otherwise, there is a situation that can be described as follows: ''You declared yourself a private doctor and freely sell medications that are subject to restriction.''
We have to admit that now the activity of MFO is risky, Art says: ''Yes, people take out loans, don't read the agreement, they are wrong. But the country and society can up and say that it's their fault. When there are 40,000 guilty people in the country, one can up and do so. When there are 4 million guilty people, it's a social problem.''