The Russians stopped paying debts on microloans

Arrears hit record levels

The Russians stopped paying almost 7 million loans issued by microfinance organizations. The level of delinquency over 90 days in MFI portfolios in October 2022 reached 43.1%, the highest since the pandemic crisis. This “oil painting” from the National Bureau of Credit Histories was written off, as they say, from nature. In the bleak Russian reality, there are many paradoxes that do not have clear interpretations. More precisely, they are much easier to explain from a metaphysical, timeless point of view than from the position of the current moment.

Here is the question: why has the situation with bad debts on microcredits only gotten worse over the past couple of years? After all, the state, represented by the Central Bank and parliamentarians, is trying with all its might to protect the population (mostly financially illiterate) from obviously onerous conditions hidden behind complex wording in the texts of agreements. So, on March 4, 2022, the State Duma adopted a law on microloans, according to which the maximum daily interest rate cannot exceed 0.8%. Whereas before it averaged 2-3% per day. According to the document, the marginal annual rate has also been lowered from 365% to 292%. In addition, no MFO is entitled to engage in lending if it is not included in the state register of the Bank of Russia.

The Central Bank began to tighten regulation in this sector, which has always been considered problematic, at least in 2018. And from January 1, 2020, restrictions on the maximum debt of individuals on short-term (up to a year) loans came into force: accrued interest, fines, penalties, as well as payments for services provided by the lender to the borrower for a fee, cannot exceed the debt itself by more than 1.5 times. Emphasis was placed on situations with the most profitable payday loans for MFIs: we are talking about amounts up to 45 thousand rubles, which were issued to citizens for up to two months. It was on them that the most serious percentage of non-return arose.

But the share of delinquency, in spite of everything, continues to grow at an accelerated pace – a little more, and it will reach half of all microloans. In this “kingdom” that lives its own inner life, as of old, much is wrong, and if something changes, then only for the worse. According to the Central Bank, 41.3% of loans issued in the second quarter fell on clients who already repay loans for more than 80% of their income (debt burden indicator, PTI, more than 80%). There is a direct relationship between PTI and the level of risk: the higher the debt load of borrowers, the more delinquencies.

Administration is a formally correct tactic. But against the historically established “scrap” the Central Bank does not and cannot have any reception: the domestic economy is steadily degrading, and in conjunction with it, the solvency of the population. According to the forecast of the Ministry of Economic Development, in 2022 inflation will be 12.4% (in 2021 it was 8.4%). In the third quarter, the real disposable income of Russians accelerated the decline to minus 3.4% in annual terms against minus 0.8% a quarter earlier (when the minimum wage was indexed). In the structure of expenses, the share of mandatory payments and contributions (including interest on loans) increased to 15.4% from 14.8% in the third quarter of 2021.

In January-September of this year, the purchasing power of monthly per capita income, measured in kilograms, fell for several types of basic products. For example, for the reporting period last year, this money was conditionally enough to buy 735 kilograms of sugar, and today – for 568. In the case of cabbage, the situation is as follows: 1,146 kilograms a year ago, 749 – now. According to the HSE Center for Civil Society Research, 69% of Russians experience financial difficulties.

Why all these numbers? And to the fact that tens of millions of our fellow citizens have a real problem – how to reach the salary? Many are looking for the answer in the nearest microcredit “shop” – and where else? But you have to repay the debt with interest, which means that you won’t reach the next salary again … And so there is an endless chain of delays and non-payments.

Yes, today in Russia there are rarely hungry faints on the street, unlike in the 1990s. But the problem is that poverty in public and state perception has ceased to be an unconditional evil, out of the ordinary, unfortunate phenomenon: now it fits into the rational picture of the world of an average citizen of the Russian Federation. Just think, some families cannot afford to buy meat and fish, and some cannot afford repairs or emergency medical services, not to mention a week-long vacation in Turkey. The main thing is that you manage to “make ends meet”! Including – thanks to microloans. What actually means more and more hopeless and non-stop immersion in the debt swamp.