The microcredit sector is awaiting changes.
The financial regulator proposes not only to change the method for calculating the debt burden ratio but also to lower rates on online loans.
According to Yerbol Omarkhanov, head of the Association of Microfinance Organizations of Kazakhstan (AMFOK), these measures will negatively affect the market.
He believes that cheaper loans could lead to an increase in Kazakhstanis’ debt burden, while changes in the approach to assessing solvency could deny access to consumer loans to more than two million citizens.
In an interview with a correspondent of the Kapital.kz Business Information Center, the expert also spoke about other initiatives.
– Yerbol Sekenovich, what initiatives of the Agency for Regulation and Development of the Financial Market (ARDFM) concerning the microfinance market are currently under discussion?
– There are several such initiatives.
For example, currently, the issue of tightening requirements for the calculation of the borrower's debt burden ratio (DBR) is being considered.
Let me explain: DBR is the ratio of a borrower's payments on all outstanding loans and credits to their monthly income.
At present, for a borrower, the DBR is set at 50%, meaning that the monthly loan payment should not exceed half of the borrower's official income.
The financial regulator plans to exclude certain sources of income from the approved list used for calculating DBR, based on which MFOs determine debt burden.
Additionally, MFOs are planned to be obliged to calculate the DBR even for loans up to 42,500 tenge under short-term online microcredits.
The MFO sector does not support these initiatives for several reasons.
The main one is that the share of overdue debts over 90 days among MFOs (excluding pawnshops and credit partnerships) stands at 6.1%.
This indicates the high quality of the MFO loan portfolio and their responsible approach to determining borrowers’ solvency and calculating debt burden.
In other words, there are no objective, systemic risks associated with the excessive growth of consumer lending and citizens' debt burden within the microfinance sector.
This is also confirmed by data from the Analytical Center of the Association of Financiers of Kazakhstan (AFK):
Firstly, within the loan portfolio structure of banks and non-bank credit institutions, the combined share of consumer microloans issued by MFOs does not exceed 5–6% (including pawnshops and credit partnerships).
Thus, MFOs are not the main drivers of consumer lending growth or the increase of Kazakhstanis’ debt burden.
Secondly, according to AFK data, the average debt of an MFO borrower on consumer microloans is lower than the average nominal wage in Kazakhstan (whereas for second-tier banks, it is higher).
Thus, currently, MFO borrowers’ incomes allow them to service their microloans.
For example, according to the Bureau of National Statistics, the average nominal monthly wage in Kazakhstan is 251,545 tenge.
This shows that a portion of Kazakhstanis can service microloans not exceeding the minimum salary (42,500 tenge) without financial difficulty.
Moreover, there is no urgent need to calculate the debt burden ratio for such loans.
Based on the same official data, the number of self-employed citizens exceeds 2 million.
Most of these citizens do not have officially confirmed income necessary for DBR calculation.
Thus, if MFOs are required to calculate DBR based only on officially confirmed income, and for loans of up to 42,500 tenge, it will deny access to consumer loans for more than two million citizens.
Meanwhile, the credit needs of this portion of the population will remain, and regulatory measures cannot eliminate them.
As a result, this self-employed segment will turn to illegal lenders.
Thus, such measures could lead to the expansion of illegal lending.
Furthermore, it is unclear why DBR calculation is needed for secured microloans, where vehicles mainly serve as collateral.
In case of loan default, the debt can always be repaid through the realization of the collateral.
– As far as I know, it is also planned to lower the rate on online loans...
– Yes, that’s correct.
The financial regulator intends to lower the maximum rate on short-term online microloans.
Currently, this rate stands at 30% of the principal amount, and it is proposed to be reduced to 20%.
In our view, this measure could negatively affect consumers of financial services because loans would become more affordable.
This could lead to increased demand for microloans and, consequently, an increase in the debt burden of Kazakhstanis.
– Why did the financial regulator decide to introduce this amendment?
– The measure to reduce loan rates aims to protect the rights of financial services consumers.
However, there are already sufficient restrictions on microloans to prevent MFOs from excessively increasing borrowers’ debt burden.
For example, currently, the maximum remuneration rate on online loans is 30% of the principal amount.
This means that if a borrower takes a 30,000 tenge microloan, the maximum additional remuneration cannot exceed 9,000 tenge over the entire loan term.
Moreover, the maximum term for an online loan is 45 days — this is established by law.
Under the law, the total amount of all borrower payments cannot exceed the amount of the microloan.
Thus, if a borrower took a 30,000 tenge loan, the sum of all payments, including interest and penalties for late payment, cannot exceed 30,000 tenge.
– Should we expect any other changes in the market?
– I believe so.
Another discussed innovation is the change in the procedure for obtaining consent to provide information to the credit bureau and to obtain a credit history report.
Currently, MFOs can use one consent from the borrower to obtain information from the credit bureau for multiple microloans.
Now it is proposed that MFOs obtain separate written consent from the borrower for each loan.
In this case, the credit bureau will be obligated to check the validity period of the credit contract and provide a credit report only within the framework of the consent given by the borrower.
If the borrower refuses to provide new consent, the MFO will not be able to issue a loan because it will not have information on the borrower’s debt burden and credit discipline.
This will certainly complicate document flow between the creditor and the borrower.
Such a measure will also negatively impact the process of information exchange between MFOs and the credit bureau, leading to an increase in loan costs.
To explain further, information at the credit bureau is updated every 15 days, and checking the existence of consent and the validity of the agreement during this interval may no longer be current.
– At what stage is the discussion of these proposed amendments?
– Currently, the draft amendments to the relevant subordinate acts are under discussion among financial market participants.
We have consolidated all proposals from AMFOK members and sent them to the ARDFM.
We hope they will be taken into account.
– Does AMFOK have any initiatives that could help develop the market?
– Of course.
The ARDFM has done extensive work to regulate the microcredit market.
Now, in our opinion, it is time to think about its development.
Therefore, our association has submitted several initiatives aimed at expanding the potential of MFOs.
All our proposals are based on the needs of clients.
For example, we propose that MFOs should be granted the same functions as payment organizations.
Currently, MFOs must work with banks or payment organizations to transfer loan funds to borrowers or receive their loan repayments.
This leads to additional costs for payment transfer commissions, which are ultimately included in the microloan cost paid by the borrower.
Considering the trend of digitalization of financial services, we propose to fully utilize the potential of electronic money.
Issuing microloans through electronic wallets with full identification would allow for a gradual transition to remote service formats, reduce MFO operational costs, and, ultimately, help lower microloan prices.
Moreover, to our knowledge, the Government of Kazakhstan is currently working on a project to create conditions for developing a citizen's digital social wallet to receive social payments directly, bypassing bank transfers.
Additionally, for a long time, the microfinance sector has faced the issue of affordable funding in the domestic capital market.
Access to financing for MFOs at rates below market levels would undoubtedly lower microloan interest rates.
Therefore, we propose the creation of an apex fund, expanding participation in concessional financing programs, and increasing the involvement of MFOs in state programs supporting SMEs and productive employment, with the state compensating MFOs’ operational expenses.
In conclusion, I would like to emphasize once again that currently, there are more than enough legislative restrictions on MFOs aimed at protecting borrowers’ rights and reducing the growth of citizens' debt burden.
Due to the MFO sector’s small share in the consumer credit market, it cannot have a significant negative impact on the overall situation.
We believe that any amendments to the legislation should be based on deep statistical research, well-grounded arguments, and a thorough regulatory impact analysis.
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