Microfinance specialists have grown in crisis – Newspaper Kommersant No. 220 (7421) of 11/28/2022

The largest microfinance companies (MFCs) in January-September improved their performance year-on-year, follows from their published reports. Participants in this market are adapting to the crisis faster than banks, and by the end of the year as a whole, it can show growth, although not as significant as in 2021. But in 2023, experts believe, the momentum will be held back by tighter regulation and “maturing of credit risks.”

Kommersant analyzed the RAS reporting data of the 30 largest IFCs for the first nine months of 2022. According to the documents, the total net profit of the companies amounted to 10.26 billion rubles, an increase of 30% year-on-year. Net interest income grew by almost 11% to RUB 29.5 billion.

Thus, the microfinance market is steadily going through the current crisis, although its participants have repeatedly noted an increase in the cost of attracting customers, a drop in checks and demand for loans (see Kommersant of September 30, November 9 and November 15).

Leading companies that showed good financial results were helped by their high market positions and brands that attract and retain customers, believes Suren Asaturov, Deputy Director of the ACRA Financial Institutions Ratings Group. Also, he clarifies, economies of scale played a role in digesting the growing administrative costs and a fairly high manufacturability.

Moreover, the microfinance sector was, to a certain extent, the beneficiary of external shocks both in 2020 and against the background of the events of 2022, Ivan Uklein, director of banking ratings at Expert RA, believes. “Banks have significantly tightened the conditions for unsecured lending, while the demand for borrowed funds, on the contrary, is increasing against the backdrop of negative dynamics in disposable income,” he explains. “The short average term of microloans is an advantage for MFIs over banks in more flexible management of credit risk.”

The collateral model of MFIs also proved to be a winner. “The increase in the cost of cars, which began during the pandemic, has become a positive factor. Not only their price has grown, but also the value for owners. As a result, the security of the portfolio has become greater, the payment discipline has not deteriorated,” says Anna Kalugina, CEO of the CarMoney fintech service.

In the fourth quarter of this year, as in 2023, the factor of increased demand will prevail over the factor of increasing conservatism in MFO lending policies, Mr. Uklein notes. Even the introduced macroprudential limit (limiting the share of microloans with high PTI to no more than 35% of total disbursements) will have only a limited impact on the growth of the MFO market next year, Ivan Uklein believes.

The companies themselves are also optimistic. Despite the difficult economic situation, the MFO market in 2022 is likely to show growth at the level of 10-15%, believes Marat Abbyasov, commercial director of the MigCredit MFC (part of the Denum group). The same forecast is given in MoneyMan. “The decrease in the issuance of the spring months will be offset by seasonal demand in early autumn and at the end of the year, but only partially – this year we expect a much more restrained nature of the traditional “high season” in December than in previous years,” says MoneyMan CEO Sergey Vyesovshchuk.

However, the industry’s profitability will depend on the speed and scale of credit risks maturation, which should not be ruled out yet, Suren Asaturov warns. An unpredictable external environment and heightened economic risks could become a source of credit losses and problems for the industry if players are not careful in taking risks, the expert believes.

Issues are growing primarily in large companies, specifies Marat Abbyasov, that is, there is a concentration of the market, which will be especially pronounced next year. Leonid Kornilov, Chairman of the Board of Directors of Fintech Group Finbridge, agrees that “some companies will leave the market.” In many ways, he believes, this will be affected by the tightening of the regulatory burden – the start of applying macroprudential limits, lowering the marginal rate on loans from 1% to 0.8% per day.

Polina Trifonova