– Yerbol Sekenovich, let’s start with the statistics. Could you share how many MFOs have closed over the past few years and why companies are leaving the market.
– As of October 1, 2020, the microfinance sector of the Republic of Kazakhstan consisted of 226 microfinance organizations. Since the introduction of licensing in 2020 and up to the present day, 54 MFOs have ceased operations due to the voluntary surrender of their licenses. In respect of 28 MFOs, the financial regulator decided to suspend or revoke their licenses. Currently, 222 MFOs hold licenses for microfinance activities, taking into account new market entrants.
At the same time, most of the 54 MFOs that exited the market voluntarily did so, in our view, due to the increase in minimum charter capital requirements and their inability to recapitalize. Another 28 MFOs were forced to suspend or cease operations due to systematic and serious violations of microfinance legislation.
New rules and slowing credit portfolio growth
– Tell us what the MFO market is currently experiencing and how legislative changes are affecting the industry.
– At present, the MFO market is on the verge of another transformation. This is primarily due to recently adopted amendments to the microfinance law aimed at strengthening borrower protection. In addition to various restrictions designed to reduce the growth of household debt, the institution of the microfinance ombudsman has been introduced. The microfinance ombudsman will resolve disputes arising from microcredit agreements concluded between MFOs and borrowers, based on borrower requests. The ombudsman’s decisions will be binding for MFOs if accepted by the borrower
It is also expected that restrictions on unsecured consumer microloans for individuals, along with stricter debt burden ratio calculations, will slow down the growth of credit portfolios and overdue debt in the MFO sector.
In our opinion, all these changes will positively affect the microcredit industry by strengthening social responsibility and protecting consumer rights. We fully support this direction, as we believe that the MFO sector should gradually return to its traditional roots — the classical concept of microcrediting aimed at developing entrepreneurial activity and supporting small businesses. Microloans should benefit society and the state, contribute to economic growth, and not create risks associated with excessive debt and violations of borrower rights
– How relevant are MFO products today? Many market participants say that the consumer lending segment is already saturated. Do you agree, and what direction is the MFO market taking?
– Until recently, there was strong demand for consumer microloans. However, this segment is likely to slow down in the future — not because of saturation, but primarily due to stricter regulatory measures introduced this year. Many borrowers will now be denied loans due to tighter debt burden requirements.
Once the unsecured consumer lending segment stabilizes, it will be time to focus on developing business lending and returning to the traditional foundations of microcrediting. However, to stimulate this direction, state support will be needed through regulatory changes aimed at expanding the potential of classical MFOs.
Quality over quantity
– Speaking of tightening regulations, statistics show that online microloans are being approved less frequently. How does the market view these changes?
– Speaking of tightening regulations, statistics show that online microloans are being approved less frequently. How does the market view these changes. The core players in the MFO sector still represent traditional microcrediting, operating offline through extensive branch networks in remote regions of Kazakhstan, supporting entrepreneurship
