The microloan market is preparing for lower margins

Based on the results of the first half of the year, experts are beginning to assess the prospects for the microfinance market for the next year, noting that growth rates may drop to 5–10%. This is several times lower than in the crisis year of 2022, and worse than forecasts for 2023. The slowdown will occur against the backdrop of tightening regulation of the industry, so not all players will cope with the new requirements. According to analysts, up to 40% of companies may leave the market.

Kommersant got acquainted with the review of the microfinance market for the first half of the year prepared by Expert RA, in which the growth of the segment in 2024 is estimated at 5–10%, which is comparable to the rate of increase in retail lending. This is significantly lower than the post-pandemic 2021 (growth by 51%) and the crisis year 2022 (growth by 22%). The review does not provide data for the first half of the year; in general, for 2023, Expert RA expects growth of 10%, market participants talk about 10–20%.

The market will have to adapt to “significant challenges even in the absence of new shocks in the economy,” which will lead to a slowdown in growth, the authors believe.

In particular, we are talking about tightening macroprudential limits from October 1: no more than 15% of borrowers should have a debt burden above 80%, no more than 20% – 50–80%. In addition, the increase in reserve ratios for microloans announced by the Central Bank for a period of two to six months at a rate not exceeding 0.8% per day will be in effect.

“Issuing a microloan for a period of more than 30 days made it possible to significantly mitigate the pressure on capital reserves, despite the fact that the economics of the product and its client base overlap as much as possible with the most regulated segment of payday loans,” the review says. Compliance with the new standards will require either significant additional capitalization of MFOs, or will lead to business stagnation for players without significant financial resources, Expert RA believes.

The past six months and 2022, despite tightening regulation and crisis phenomena, MFOs were closed with significant profits (see “Kommersant” dated December 29, 2022 and August 26). “The regulator’s actions are primarily intended to limit the supply of credit products, but the demand for them remains high, which allows players to maintain growth even with the tightening of the regulatory burden,” believes Valery Piven, head of the ACRA financial institutions ratings group. He adds that the profitability of the MFO business is high enough to support business development at the expense of a possible decrease in profitability, and key players will not have big problems attracting new resources.

Market participants themselves are preparing for a decrease in business margins and an intensification of the trend towards industry consolidation (see Kommersant on March 30).

“To reduce the risk of deterioration in the quality of portfolios, companies prefer to work with repeat clients, high-quality borrowers without a high debt load. This does not contribute to the revival of the market,” explains Creditter CEO Igor Smirnov.

“Large companies that comply with the standard with a reserve are most likely to adapt successfully,” says Webbankir CEO Andrey Ponomarev. Difficulties, according to him, may arise if the company “accrues reserves back to back”, in which case it will be necessary to either attract additional funding or reduce rates so that they become less than 250% per annum, that is, they are limited to 0.68% per day instead of the current ones 0.8%. The second option, the expert clarifies, will accordingly lead to a decrease in profitability.

“The focus on market consolidation will increase,” agrees commercial director of MigCredit MFC Marat Abbyasov. According to various estimates, the number of microfinance organizations may be reduced by 20–40% (currently there are over 1 thousand microfinance organizations in the Central Bank register), says Roman Makarov, general director of the Zaimer MFC. Mostly, he adds, these will be small companies in the offline segment.

Polina Trifonova