Russians took out record payday loans even though incomes rose

In 2023, citizens in Russia took out more than 34.9 million payday microloans, the National Bureau of Credit Histories (NBKI) reported. This figure was a record: it is almost 12.3% higher than the number of similar loans issued in 2022. The growth of the microloan market to such high values ​​was not prevented even by the tightening of regulation of the industry last year, namely the introduction of limits by the Central Bank of the Russian Federation on the issuance of consumer loans. Why payday loans are popular among Russians, despite its nominal growth at the end of the year, and what risks there are, MK found out from experts.

Payday loans are loans from microfinance organizations (MFOs), which are taken out for an amount of up to 30 thousand rubles and for a period of no more than 30 days with a one-time repayment. It was they who grew by 12.3% in 2023 compared to 2022.

Experts point out that the growth trend for a particular type of microloans reflects an increase in this segment as a whole: according to forecasts, the MFO market will grow by 10-15% at the end of last year (analysts are still calculating final statistics). It is curious that such volumes were achieved despite the regulation of the Central Bank of the Russian Federation limiting the appetites of MFOs, namely the introduction in 2023 of the so-called macroprudential limits (MPL, this is the name of the maximum share of unsecured, unsecured lending in the total volume of loans) for issuing loans.

It is surprising that payday loans have increased despite the general increase in household incomes. According to the Bank of Russia and Rosstat, the growth of average nominal wages in 2023 was almost twice as high as inflation. Over the three quarters of 2023, Russians’ earnings increased by 15% (more recent data is not yet available). According to operational data from Rosstat, real incomes of the population over the same nine months of 2023 increased by 4.8%. At the same time, the incomes of those who were among the least well-off last year increased even more – by 18.2%. Let us recall that it is the least wealthy workers who belong to socially vulnerable categories of the population who most often resort to payday loans. As Boris Kopeikin, First Deputy General Director of the Center for Strategic Research, pointed out, income growth in 2023 was ensured not only by wages, but also by social benefits, which were “consistently indexed to the level or slightly higher than the inflation rate.”

So why, despite rising incomes, including among the poorest working people, have citizens taken out a record number of payday loans? According to Yulia Kovalenko, associate professor at the Plekhanov Russian University of Economics, this is due to rising prices and the overall inflation rate of 7.42% at the end of 2023, to which citizens did not have time to adjust. It may be different for each household, it all depends on the specific goods, works and services used by compatriots, so for some, “personal” inflation could be higher.

“The clients of microfinance organizations are representatives of the most vulnerable and poor segments of the population, for whom inflation was higher than the declared values,” Dmitry Yanin, chairman of the board of the International Confederation of Consumer Societies (ConfOP), continues the conversation. — MFO borrowers are barely making ends meet; their incomes have not increased as much as prices have increased. But expenses remained the same: you need to buy groceries, get your children ready for school, pay for housing and communal services…” An indication of the growth in incomes of the least affluent segments of the population from Rosstat changes the situation little, because if a person earns slightly above the minimum wage, for example, 17,000 rubles per month (recall that this figure in 2023 was set at 16,242 rubles), then an increase to income of 18.2% means an increase in income by 3094 rubles. It is clear that neither 17 thousand nor 20 thousand rubles a month will get you anywhere.

In addition, last year there were significant fluctuations in exchange rates, which affected the pricing of goods and services. Let us recall that according to the Moscow Exchange, in 2023 the ruble depreciated against the dollar by almost 30%. This is the worst result of the Russian currency since 2015. “For the above reasons, situations occurred when citizens played it safe and took out short-term loans “before payday” in order to buy a particular product or service at a price at a specific point in time,” notes Kovalenko.

Another important point: most loans taken out by MFOs are loans to repay a previous loan. According to Yanin, the most popular product of microfinance organizations currently is short-term loans at almost 300% per annum, and this rate is legal. As a result, not the richest people, whom banks refuse to lend, borrow money from microfinance organizations at usurious interest rates. The increase in the volume of microloans issued shows that the poor now have no alternative other than lending at almost 300% per annum. However, according to our interlocutor, the microloan market will continue to gain momentum if the regulator does not prohibit this kind of practice.

Among the risks that the Russian economy may face due to the record growth of microloans is a sharp increase in the level of debt among the population and the expansion of the process of personal bankruptcies. In addition, as Kovalenko pointed out, an increase in the money supply entails an increase in prices, and this subsequently affects inflation, and it is precisely this that the Bank of Russia is fighting by raising the key rate.