New MLPs for unsecured loans threaten the departure of up to 20% of MFOs

The Bank of Russia has established new macroprudential limits (MPL) for unsecured loans and borrowings. The restrictions have already had the greatest impact on the microfinance business, where traditionally there are higher risks and a higher proportion of borrowers with a significant debt load and low income. Market participants believe that the new tightening will lead to the departure of up to 20% of players. Meanwhile, they emphasize, the payment discipline of borrowers with a high debt load is often higher than that of those with less debt.

On November 24, the Central Bank published new MPLs for unsecured loans and borrowings for the first quarter of 2024. In particular, the share of borrowers of microfinance organizations (MFOs) with a maximum debt load (MLL) of 50–80% should not exceed 25% of the volume of loans provided (in the fourth quarter of 2023 – 30%), the share of borrowers with a MDL of 80% or more – 15% (this figure remained unchanged in the quarterly comparison).

Participants in the microfinance market were ready for such a development of events and “had already managed to set up business models taking into account the new decision of the Central Bank,” notes Elman Mehdiyev, chairman of the board of the self-regulatory organization on the market (SRO) MFO “MiR”. “The indicators are being adjusted not for the first time and, presumably, not for the last time,” notes Ilya Zharsky, managing partner of the Veta expert group. “Market participants are quite successfully adapting to new requirements and demonstrating, albeit moderate, but confident rates of reduction in the share of debt with IPA above 80%.”

Nevertheless, due to the new regulation, microfinance organizations are reducing their issuance even in the fourth quarter of 2023, although this is the highest season due to the approaching New Year holidays, admits Igor Smirnov, CEO of MCC Creditter. In January, issuances traditionally decline. Against the backdrop of the news of the introduction of new MPLs in the first quarter of 2024, issuances may fall by another 15–20%, he expects.

In addition, market participants emphasize, each new tightening of regulation makes legal microfinance less and less accessible to the population, and there are fewer and fewer quality clients (see Kommersant on August 17 and September 8). “Therefore, there are great concerns regarding the risks of growth of the gray segment, aimed at those clients who do not pass the new scoring in banks and microfinance organizations,” notes Elman Mehdiyev.

“The risk of growth in the gray segment of MFOs is also associated with the lack of a unified methodology for calculating MPL in the microfinance market. Some borrowers, faced with a loan refusal due to the imperfections of the current methodology, go to illegal representatives of the MFO sector, whose activities are outside the legal framework,” Moneyman adds.

As a result, microfinance experts emphasize, tightening conditions may increase the risks of developing the gray segment of microfinance organizations, where borrowers can turn to illegal sources of financing.

Those MFOs that leave the market may also end up in the gray sector. “Some microfinance organizations risk facing financial difficulties and leaving the register due to their inability to meet new requirements,” notes Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. According to Moneyman estimates, the number of players could decrease by 10–20%; only companies with “the most highly optimized operational processes” will be able to continue to operate effectively. As of November 26, there were 1,027 microfinance organizations in the register of the Bank of Russia.

Meanwhile, market participants note a fairly high payment discipline among borrowers with a personal income tax of more than 80%. Thus, according to the online financial platform Webbankir, on average in September, the share of defaults among the most heavily indebted borrowers, whose PNI exceeds 80%, was 1 percentage point less than among borrowers with a low debt burden (PDN less than 50%).

According to preliminary data from October, the difference between clients with different PDN became even more noticeable: borrowers with large debts were 4 percentage points less likely to fall into arrears than borrowers whose financial situation seemed more stable.

Polina Trifonova