CBR calls for better supervision of microlenders

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/11

Although lending of commercial banks to households has declined, the growth of providers of small loans at high interest is booming. Some 3,000 registered microlenders now operate in Russia and it is estimated that there is also a large number of illegal loan-sharking operators. The Central Bank of Russia reports declaring 430 illegal microlenders in 2015, and that cancellations of licences have become more frequent. At the beginning of March, the CBR cancelled the licences of 34 registered microlenders. With increased online surveillance, the number of cancellations is expected to rise significantly this year.

Russia’s credit information registry shows that the stock of microloans is currently about 70 billion rubles (€875 million), or less than 1 % of the value of the stock of commercial bank loans to households. Over half of all microcredits are consumer loans granted to private individuals and the rest consists of loans to tiny firms or sole proprietorships. Payday loans, i.e. small loans with maturities of up to 30 days and daily interest charges of about 2.5 % are the fastest growing product line. According to media reports, significantly higher rates and illegal collection practices are not uncommon. At the end of this month, an amendment will enter into force limiting the interest rate charged on microcredit to no more than 400 % p.a. (the CBR had requested a 200 % ceiling). In addition, the CBR has suggested restrictions on the number of loans for a single borrower.

Supervision of other financial market participants is also tightening. The CBR has suggested mandatory stress tests for private pension funds and stricter competence requirements for fund managers. Any firm offering financial market services must be a member of one of the seven approved associations in the financial field. The reforms are intended to reinforce the branch’s transparency and stability.

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