Debtors in Russia experience a surprising drop in numbers.
When You're Not Actually Buying, but Borrowing: The Microloan Phenomenon
Photo: Oleg RUKAVYTSYN. Head to KP Photo Bank
In the latter half of 2024, the number of borrowers in our nation declined by half a million individuals. Meanwhile, statistics from the Central Bank reveal that 50.1 million people currently carry debts to banks or microfinance organizations (see graph for further insights). It's worth noting that the number of bank clients has dipped, while the number of microfinance organization (MFO) clients has risen.
High Interest Rates Dampening Credit Appetite
On the whole, this decrease in borrowers is an unusual trend. In recent years, the number of borrowers had been on an upward trajectory every quarter. Citizens have been taking out mortgages, relying on consumer loans, and using credit cards more frequently.
The only exception occurred during the second quarter of 2022, when the number of borrowers also decreased by 300,000. This drop might be attributed to some borrowers choosing to prepay their loans, and banks temporarily halting new loan issuance. Additionally, the key interest rate was an astronomical 20% per annum at the time, though it's even higher now, driving a more substantial decline.
Furthermore, the Central Bank has recently implemented additional constraints for banks, known as macroprudential measures. These measures reduce the attractiveness of lending to high-risk borrowers, such as those with a debt-to-income ratio over 50% or even 80%. As a result, such borrowers are more likely to be rejected. However, there's a backlash: this leads to a surge in another category of loans...
Installment Plans Over Cash Loans
In the second half of the previous year, the number of MFO clients increased considerably—by a staggering 200,000 individuals in just one quarter, reaching 5.2 million. Over the past 1.5 years, the growth in this category has hovered around 20%. So, why are customers suddenly gravitating towards microloans with daily interest rates of up to 0.8%, as opposed to bank loans with interest rates of 30-40% per annum?
It's plausible that there are several explanations for this shift. For instance, if a person applied for a consumer loan to fund a major renovation but was denied, they might opt for a microloan instead to resolve pressing issues. Additionally, it's quite common for MFOs to provide installment services. These have grown tremendously in popularity over the past year and can be found almost everywhere. However, many customers might underestimate the fact that they're taking out a microloan, not an installment plan, as Daria Andrianova, deputy director of the National Association of Financial Planning Specialists, points out.
The Central Bank aims to make the installment market more transparent in the near future. This form of credit is becoming increasingly popular. The CB plans to rectify the situation if installments were completely free, citing no need for regulation. However, in most cases, clients end up paying for this service, ranging from 60-70% per annum. Whether this charge is classified as a commission or interest on the loan is immaterial. The core issue remains the same: a person obtains a specific sum, can immediately afford a certain product, but ends up paying a higher price overall.
PHOTO: Dmitry ORLOV. [Navigate to KP Photo Bank]
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- The statistics from the Central Bank indicate that a significant number of people, about 50.1 million, are currently in debt to banks or microfinance organizations. This suggests a growing trend in personal-finance borrowing, particularly in the banking-and-insurance sector.
- As interest rates creep up and banks apply stricter lending criteria, many borrowers might find themselves turning to microfinance organizations and personal-finance products such as microloans, which offer more flexible terms, despite potentially higher interest rates.
