The State Duma was concerned about the debt slavery of Russians and wanted to ban MFIs

Human rights activists supported the initiative, everyone else called it strange and populist

The State Duma proposed to ban the activities of microfinance organizations (MFIs). As conceived by the initiators, such a measure should protect low-income borrowers from taking on unbearable financial obligations and reduce the debt load of the population. Almost every fifth able-bodied Russian is an MFI client, and over the past year the number of citizens who have issued microloans has grown, which alerted the deputies. Why the adoption of such a law is unlikely – in the material “MK”.

As noted in the explanatory note to the bill, at the end of 2022, 17 million Russians took loans from IFIs in the amount of 608 billion rubles, which is 3.1 million more than a year earlier. Considering that the working-age population of Russia is about 83.2 million people, it turns out that today almost every fifth compatriot has issued a microloan. The initiators of the law are also worried that “about 20% of citizens apply to MFIs due to low income, unstable place of work or the absence of branches of large banks in the locality where they live.” And 40% of these people have bad credit. According to the authors of the bill, all this leads to an increase in debts among the population and a decrease in the standard of living of low-income citizens.

These ideas have already been supported by human rights activists. Thus, the International Confederation of Consumer Societies (ConfOP) emphasized that the need for such a law is long overdue, because the work of MFIs leads to an increase in the debt load of the poorest part of the population. Many people who are constantly forced to “shoot to payday” cannot repay loans and thus drive themselves into debt bondage. It is significant that one of the surges in payments on microloans occurred in the summer of 2020. This happened in those days when the families received child benefits in the amount of 10,000 rubles. That is, people had to spend their children’s money on moneylenders, because they saw no other way out. In addition, the allowed rates on microloans are approaching 300% per annum, that is, they are actually extortionate.

However, financial experts were extremely skeptical about the initiative. According to Artem Tuzov, Director of the Corporate Finance Department at IVA Partners Investment Company, MFIs have occupied their niche in the economy and often benefit needy citizens in specific life circumstances. “At one time, microloans, as a phenomenon, were really seriously fought,” recalls Polina Gusyatnikova, senior managing partner at the law firm PG Partners. “But then they decided to turn MFIs into a civilized structure, and they succeeded: their activities are controlled by the regulator.” It is not clear why, after so much effort has been made to prescribe the rules of the game in the market and bring it out of the “gray zone”, now completely destroy everything. The problem of “payday loans” for people with a bad credit history exists not because MFIs create it, but because the population does not have enough money. It is necessary to fight the cause, raise the level of well-being of the population, and not ban MFIs, the lawyer emphasized.

“Microcrediting is practiced in all countries and everywhere it is money at a very high interest rate,” said Pavel Zyukov, head of the tax practice at Coleman Legal Services. – For example, in the UK, loans are issued at 0.8% per day, in the US – up to 1.6%, in Germany – up to 4.5%. In other words, a very high percentage is inherent in the very business model of microcredit, since people whose financial situation is unstable or who have a damaged credit history apply to it.”

“A black market in the event of a complete ban on MFIs will certainly arise, so the state will try to maintain a balance of interests, gradually shifting it towards consumers, by introducing new restrictions on the activities of MFIs,” says Associate Professor of the Department of World Financial Markets and Fintech of the Russian University of Economics. Plekhanov Denis Perepelitsa. Such work is already underway: at the beginning of the year, regulators introduced limits on the debt burden of borrowers, and on July 1, amendments to the law on consumer credit came into force, the essence of which is to limit the amount of interest on short-term loans. Thus, the marginal rate has decreased from 1% to 0.8% per day, and the marginal amount of debt on interest is up to 1.3% of the loan amount. And increased regulation has had a positive effect on the market. According to Marketing Director of the National Bureau of Credit Histories (NBCH) Alexei Volkov, the issuance of microloans has been declining for several months in a row. So, for example, in July 2023, the number of microloans (or “payday loans” up to 30 thousand rubles) decreased by 2.8% compared to the previous month.

According to Vladimir Kuznetsov, Vice-President of the Association of Lawyers for Registration, Liquidation, Bankruptcy and Legal Representation, it would be more correct not to prohibit the activities of MFIs, but to make control over them more strict, since a complete ban will not solve the problem of citizens’ debt load, but will lead to the development of the market “black creditors”, which is highly undesirable for the country.