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Market News | The Central Bank proposes to introduce the mechanism of “one loan in one hand”, MFIs will have to exclude practices that lead to over-indebtedness of citizens - Interview with the Director of the Central Bank Department
About 20% of loans issued by microfinance organizations are spent on sports betting, online casinos, etc. by the so-called captive clients of the organizations. Such estimates were given by the head of the non-bank lending department of the Central Bank. Bank Ilya Kochetkov in an interview with Izvestia. He also reported that a third of large loans with overpayments of more than 100% can be attributed to usury, since organizations circumvent the rules and drive people into debt. To stop this malicious practice, the central bank proposes to introduce a number of measures, in particular the “one hand - one loan” mechanism. In fact, as Ilya Kochetkov said, these restrictions apply only to expensive loans. It is also planned to provide a three-day “reflection period” after the repayment of the MFO debt.
— In August last year, the central bank published a document for public discussion, which outlined real reforms in the microfinance market. The changes proposed by regulators are so serious that they caused a strong reaction in the market. How are negotiations with industry insiders progressing?
— The main goal of the changes proposed in the report is to create conditions for the development of enterprises by providing them with borrowed funds, but at the same time it is necessary to eliminate practices that increase the debt burden of citizens. Consumer loans.
In fact, the market has responded positively to our proposals. We have received feedback from self-regulatory organizations (SROs) and most of the largest players in the industry. Several stages of discussion have already been completed. In early September, we held a meeting with representatives of microfinance organizations, self-regulatory bodies, infrastructure and government bodies, the scientific and expert community. Last week, the proposals outlined in the report were conceptually supported at a meeting of the State Duma Committee on Financial Markets. And on October 14, we will discuss the feedback received with market representatives.
— Was the Central Bank interested in the proposals of market representatives and will it take them into account when preparing amendments to the legislation?
— Speaking about preliminary results, among the comments received there are proposals that we are ready to hear. For example, the mayor suggests reducing the timeframe for providing information to credit bureaus. Now there are two days left. We support this plan. This allows businesses to track the receipt and repayment of a loan in real time.
In addition, many microfinance organizations noted that the requirements for attracting capital and investments are excessively strict. We are ready to consider these proposals and adjust individual prudential requirements (aimed at preventing risks and ensuring stability. — Izvestia) taking into account the opinion of enterprises.
— As is evident from the discussion of your proposal in the State Duma, legislators are very determined and are ready to prepare and adopt a law in the near future, practically during the autumn session. Will this be a separate law or an amendment to the existing law? When do you expect the project to be approved?
— Changing the composition of the MFI market will require a comprehensive revision of laws and regulations. It will be included in the Law on Microfinance Activities and Microfinance Organizations, the Law on Consumer Credit (Loans), the Law on Russian Banks and about 20 other laws. It is expected that this will happen in several stages over three years.
First of all, to protect citizens, measures such as the introduction of the “one loan per person until repayment” system, the establishment of a “cooling-off period”, and a reduction in the overpayment limit on consumer loans will be implemented.
The ban applies only to the most expensive loans.
— Has the Central Bank already decided how the “one loan per person” rule will work? Will this restriction apply to all microfinance organizations, and will it take into account the obligations of banks currently offering “salary” products?
— The ban will apply only to the most expensive loans from microfinance organizations, where the total cost of credit (FCC) exceeds 100% per annum. A person cannot have two such obligations. The purpose of this bill is to protect citizens from excessive indebtedness. If a person already has such a loan, the microfinance organization does not have the right to issue him a second expensive loan until it is repaid. However, the ban does not apply if you took a bank loan or a SRP loan up to 100%.
In addition, we plan to provide a “cooling-off period” before receiving a loan. This is necessary so that borrowers have the opportunity to approach their obligations more thoughtfully and carefully, and so that businesses cannot issue new loans to pay off existing debt.
— What kind of “cooling off period” will this be?
- We plan to do it in 3 days.
— Analyzing the latest trends in retail lending, the central bank found that many borrowers took both bank loans and microfinance loans. Regulators continue to tighten macroprudential measures against borrowers with a high debt burden who were rejected by banks and who refinanced in more expensive microfinance organizations. Doesn't it make sense to take into account obligations to banks when introducing restrictions?
— Requirements for calculating debt burden indicators (DBI) and macroprudential limits (MPL) for issuing loans to the most heavily indebted borrowers are set not only for banks, but also for microfinance organizations. Yes, the limits were different initially. For microfinance organizations, the limits were even more relaxed. However, from the fourth quarter of this year, the same MPL values will apply to microfinance organizations as to credit organizations for loans with a high personal income tax rate. This helps to avoid regulatory arbitrage and limits debt growth.
When calculating the borrower's personal income, microfinance organizations must take into account all payments on existing loans and credits as monthly expenses. If it turns out that the MPI exceeds 50%, the MFI can issue loans to such persons only within the established MPI.
— You recently said that restrictions on the maximum daily interest rate for microfinance organizations may be introduced. How?
— We have been systematically working to reduce the cost of borrowing for individuals for several years now. During this period, the PPC was reduced from more than 1000% per annum to 292%, and the overpayment limit was reduced from 4 times the loan amount to 130%. However, even now, MFI loans continue to be quite expensive for individuals, since most of them are issued at the highest possible interest rates. Currently, the possibility of further reducing the daily interest rate is being specifically considered. We are also considering a number of prudential regulation options to encourage MFIs to differentiate their tariffs and offer more favorable conditions to their best clients.
According to our estimates, a more effective way to reduce the debt burden could be to limit the maximum amount that a borrower can overpay. Currently, it is 130% of the loan amount. As an operational measure to reduce the cost of lending to citizens, it is proposed to reduce the overpayment of borrowers to 100% of the amount. That is, if you conditionally took a loan from an MFO for 1,000 rubles, taking into account all interest, penalties, etc., you will still get back no more than 2,000 rubles.
— SRO "Mir" proposes to revise the criteria for "payday loans", reducing it to 15,000 rubles, shortening the term of issue, and then introducing a limit. Do you agree with this proposal?
— In fact, the norm for payday loans is up to 30,000 rubles. Up to 30 days is no longer used. MFIs artificially extend loan terms or increase amounts to avoid regulatory restrictions. This is why a comprehensive review of consumer lending regulations is needed and restrictions based on the price of the product, rather than official standards. Therefore, we propose that the PSC introduce stricter rules for loans exceeding 100%.
Companies that do not accept the new rules of the game will be forced to leave the market.
— The President of the Central Bank Elvira Nabiullina has repeatedly stated that usurious microfinance organizations should leave the market. What kind of organizations are these and what is their share?
— In some cases, consumer loans from microfinance organizations still represent a significant burden for citizens. High-quality and honest borrowers receive payment on the same terms as less trustworthy clients. However, given the risks, the former terms should be more favorable. The current model places an unjustified burden on citizens who can afford to pay, and does not encourage businesses to select borrowers more carefully.
Moreover, there is a hidden practice of refinancing loans on the market. When the overpayment reaches 130%, instead of stopping the accrual of interest, the MFI issues a new loan to the individual and credits the previously accrued interest to his body. The so-called credit chain is formed. As a result, the debt of MFI clients grows like a snowball.
According to our estimates, about a third of all expensive consumer loans issued by microfinance organizations fall into these "chains", increasing the debt burden of citizens. The introduction of a credit limit of one loan per person and a cooling-off period is intended to prevent this practice. Companies that do not accept the new rules of the game will be forced to leave the market.
— The report says that many people have become “reliant on microfinance loans,” borrowing money to bet on sports or online casinos. Do you have any estimates on how much this goal will cost?
— Having analyzed the actual spending on bank cards of millions of MFI clients, we came to the conclusion that up to 20% of the amount of the issued loan is used for these purposes. At the same time, for some companies the rate on such loans can significantly exceed the average value, and some clients spend all the funds borrowed from the MFI on these purposes.
Overall demand: The number of loans requested by microfinance organizations has increased to 30,000. Banks have begun to refuse Russians more often. Clients are moving to this sector because of high interest rates.
— Hasn’t it turned out that by pushing unscrupulous players out of the market, we are simultaneously pushing MFIs and their clients into “gray” and even “black” zones?
— This question is asked every time a plan to tighten regulation of the microfinance sector is released. We expect the market to hear our arguments and respond by changing its approach and eliminating negative practices. We expect this to be a change in the nature of business models, product lines and approaches to assessing the quality of borrowers, rather than exploring various options for bypassing regulation. Given the constant plans to ban microfinance organizations, this is important both for the image of the market and for its future.
When it comes to "going shadow", it is very important for citizens to understand all the risks of turning to "black" creditors. These companies operate outside the legal field and do not comply with the requirements established by law. This threatens citizens with high fees, incorrect collection methods and other risks.
Russian banks are working to combat the activities of illegal lenders. Last year, about 2,000 illegals were identified, and in the first nine months of this year, more than 13,000 have a special section on our website. This allows citizens to be promptly warned of the danger.
We closely cooperate with law enforcement agencies and transfer all data on identified illegals to law enforcement agencies. The organizer bears administrative responsibility. There is a fact that a criminal case has been opened. Together with the Prosecutor's Office and Roskomnadzor, we block the websites of illegal companies. This is happening very quickly now. It will happen within a few days.
— Since you directly mentioned the ban on microfinance organizations... This bill has been introduced for several years, but, as far as I know, it has not been seriously considered until now. Why is the idea of closing the MFO market not being implemented?
— We know that MFIs are often associated with something shady and anti-criminal. This image is formed by illegal lenders operating outside the legal field, as well as high interest rates and negative practices common in the markets mentioned above. But let's look at the market as a whole. MFIs are an important part of the country's financial markets. This allows people to easily and quickly get money in a short period of time. It is also important to note that the MFI market offers not only expensive loans, but also POS loans for business financing and wholesale purchases. Interest rates are similar to bank rates.
We proposed a concept for transforming this market to eliminate its negative aspects, make it more transparent and regulated. MFIs must adapt to new restrictions and eliminate practices that lead to debt overload of citizens.
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