From July 1, it will become more difficult to borrow before payday: what are the risks

Recall the essence of the July innovations. From now on, MFIs will not be able to accrue on new loans for up to one year more than 0.8% of the debt amount per day (previously it was 1%), and the total overpayment, including interest, commissions and penalties, will not exceed 130% of the amount loan (previously it was 150%). At the same time, the maximum payment for the full cost of the loan will also decrease from 365% to 292% per annum. The terms of issuance will also apply to loans up to 10 thousand rubles for up to 15 days. It will charge no more than 1% of the special loan per day (before July 1 it was 2%), the maximum amount of interest and commissions will be no more than 15% (before July 1 – 30%).

Lazar Badalov, Associate Professor, Faculty of Economics, RUDN University:

“The Bank of Russia is carrying out systematic work to restore order in the microcredit market, this also applies to interest rates. A few years ago, in our market, 1000% per annum on a microloan was the norm. Today, the rate is limited to 0.8% per day or no more than 130% per annum. Of course, such rates are very high, but these are not those wild thousands of percent per annum.

MFI clients will definitely feel these changes. On the one hand, there will be a decrease in overpayments, but, on the other hand, MFIs will begin to refuse their borrowers more often, because they will begin to assess their financial situation more strictly. You need to understand that at a rate of 1000% per annum, MFIs were ready to distribute loans to everyone in a row, and when rates dropped by almost 10 times, the selection became stricter, so the news will have a positive effect on conscientious borrowers.

Another limitation introduced by the Bank of Russia is the maximum burden on all debts of borrowers. A PTI of 80% means that clients of banks and MFIs with a debt burden above this threshold will be less attractive borrowers. Nevertheless, the microfinance market will continue to grow: there will be fewer borrowers, but the amount of loans will begin to grow. In addition, there is a convergence of lending conditions between banks and MFIs, which in the future will lead to some migration of clients from one financial institution to another.”

Alexander Balakirev, specialist of the law firm “Intercession”:

“Now most MFIs offer interest-free loan periods, usually from 5 to 30 days, depending on the organization and its rates. Many really put 1% of the amount of debt per day in case of delay on the loan. Therefore, the innovations that have come into force can only be welcomed, they will somewhat ease the debt burden of borrowers. At the same time, it is necessary to understand that all the same, the percentages that we see, even taking into account the new restrictions, are far from what the same banks can offer. But the peculiarity of the clientele of MFIs is that banking services are not available to them for one reason or another.

The advantages of the innovation, of course, lie in the fact that this is a trend towards more “human” conditions for the borrower (despite the fact that even these conditions are far from the concept of a “comfortable loan”). The disadvantages for MFIs are banal – the potential profit is getting smaller, but the risks remain at the same level, given the low level of income of the population in general and their audience in particular.

In my opinion, such an initiative will not lead to an increase in demand for microloans: for the borrower, the conditions do not change dramatically, it is still a huge interest in case of non-payment.”

Alla Khrapunova, expert of the People’s Front project “For the Rights of Borrowers”:

“The tightening of the regulator’s requirements for lending to borrowers with a high debt burden and the limitation on interest on microloans, in our opinion, will help to improve the market, reduce the level of individual debt and delinquency. The Bank of Russia is pursuing a rather flexible and balanced policy that maintains a balance of interests of both borrowers and lenders in the face of a difficult economic situation and a continuing decline in the level of real disposable income of the population.

At the same time, we see some lenders resorting to various tricks to get around the restrictions imposed by the regulator and maintain their revenue performance in the short term. For example, in the microfinance market, issuing loans up to 10 thousand rubles is quite actively practiced, which do not fall under the limitation of limits and thus lend to their already poor consumer. Such tricks do not formally contradict the law, but do not contribute to improving the situation on the market. But from January 1, 2024, this “loophole” will also be closed.

As for limiting the interest rate on short-term loans, this measure is expected – the regulator has been limiting not only the rate, but also the maximum amount of debt for several years. Therefore, microfinancers have had time to prepare and develop products that will generate profit and ensure financial inclusion in the face of constraints. At the same time, we also predict that part of the market, unable to cope with the new requirements, will go into the “illegal”. Therefore, we continue to consistently insist on tougher liability for illegal lending.”

Dmitry Yanin, Chairman of the Board of the International Confederation of Consumer Societies (ConfOP):

“There is no need to feel any high expectations from the decision to slightly reduce the usurious rate, which is still almost 300% per annum. MFI loans have remained super-expensive.

The solution adopted is an imitation of regulation in the field of consumer protection of financial services, and it is ineffective. Let me remind you that in developed countries usury is prohibited in principle. The maximum cost of microloans should be limited to at least 30% per annum.

The adopted decision will not reduce the problems of borrowers, since it is impossible to service a loan at such a rate. Most borrowers who take microloans do not repay them within the agreed period, extend them many times, driving themselves into credit bondage.

The volume of debt will continue to increase, because the legitimacy of this activity remains, and the issuance of online loans is growing. The decision in the end will not affect anything: it is an imitation of regulation.”

Evgenia Bodnar, bankruptcy lawyer for individuals at Financial and Legal Alliance:

“Since the maximum loan rate will be reduced to 0.8% per day from July 1, 2023, the risk for MFIs to receive less profit will increase. At the same time, the demand for loans is growing: after a difficult 2022, people have gained confidence that in 2023 they can fulfill their plans. Of course, MFIs want to earn money, and giving more to new clients is a way to sell loans more profitably within the limits established by law. Statistics show that the demand of citizens for the services of MFIs is increasing every year.

In general, lending is a source of economic development, but with an excessive increase in debt burden, problems begin. When people cannot cope with payments, they go into the shadows: it is unprofitable for them to work in official jobs and pay taxes, since at any moment bailiffs will start deducting their salaries

The negative trend is illustrated by the growth in the rate of personal bankruptcies: in Q1 2023 it amounted to 40.3% compared to the same period in 2022, while in Q1 2022 compared to Q1 2021 it amounted to 33.6% financial institutions have broad powers and opportunities to independently determine credit risks when approving loans. The frequency of citizens’ appeals to MFIs is unlikely to decrease. It is noteworthy that this phenomenon is quite normal both for the economy as a whole and especially for the current realities.”