Kapital.kz: What innovations await microcredit market in 2020

From January 1, 2020, previously unregulated participants in the financial market will fall into the scope of regulation of the new supervisor. Such a norm is provided for in the Law “On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on the Regulation and Development of the Financial Market and Microfinance Activities and Taxation”. To implement the law, the National Bank of the Republic of Kazakhstan adopted more than 10 by-laws and regulations governing the activities of MFIs. About how these innovations will affect market participants to a correspondent of  the Kapital.kz business information center.  said the director of the ALE "Association of Microfinance Organizations of Kazakhstan" Yerbol Omarkhanov.

Starting next year, previously unregulated by the National Bank credit market entities - credit partnerships, pawnshops and so-called online lenders providing loans via the Internet, will be required to register with the National Bank, and their activities will fall under the regulation and supervision of the Agency for Regulation and Development of Financial market.

Now, subjects of an unregulated lending market will be required to provide information to a credit bureau, said Yerbol Omarkhanov. According to him, this will provide an opportunity to better assess the solvency of borrowers, based on information about obtaining loans from other credit organizations.

“Prior to the adoption of the Law, unregulated subjects of the credit market were not obligatory suppliers of information to the credit bureau, therefore, borrowers could receive several loans from such organizations before applying to MFIs, and we were not able to assess the risks associated with this,” explained the head of AMFOK.

In general, the inclusion of non-bank credit organizations in the regulatory perimeter of the authorized body, he said, was positively perceived by the microfinance sector, since the need has long been brewing for bringing this lending market into a civilized and transparent form.

Recall that MFIs have been under the regulation of the National Bank since 2016, being mandatory providers of information to a credit bureau, as well as subjects of financial monitoring carried out to counter the legalization of illegal proceeds.

What changes will affect the activities of non-bank credit organizations? 

First

The law increased the maximum amount of microcredit from 8,000 times MCI to 20,000 times MCI. Thus, this increase will make it possible to involve medium and large businesses in the services of MFIs.

Second

Organizations engaged in microfinance activities, in addition to providing microcredits, can additionally invest their own assets in securities and other financial instruments; carry out the functions of a payment agent and a payment subagent, as well as an agent of the electronic money system, factoring operations and forfeiting operations, issuing guarantees, sureties and other obligations providing for execution in cash; provide microloans electronically; assign rights of claim under a microcredit agreement; carry out activities in the form of a joint-stock company, issue securities, bonds, transfer microcredit at the request of the borrower to a third party; accept as collateral shares or stakes in the authorized capital of legal entities.

“These changes will allow microfinance organizations to reach a higher level. We hope that the possibility of issuing bonds, assigning claims under a microloan agreement, carrying out activities in the form of a joint-stock company partly helps to solve the problem of financing microfinance organizations, attracting investments, including foreign ones, to the microcredit sector, ”said the Director of the Association of Microfinance Organizations of Kazakhstan .

However, in his opinion, only large or medium-sized microfinance organizations will be able to take advantage of these additional options, since this requires a considerable investment. 

Third

At the sub-legislative level, the minimum authorized capital for microfinance organizations has been increased. Its phased increase is planned from January 1, 2020 to July 1, 2022 to 100 million tenge.

“Given that more than 60% of microfinance organizations today have an authorized capital of up to 50 million tenge, a simultaneous tightening of requirements could lead to a sharp reduction in microfinance organizations. Therefore, the association took the initiative to gradually increase the minimum size of the authorized capital, ”said Yerbol Omarakhanov.

According to AMFOK estimates, by July 1, 2022, there may be a slight reduction in the participants of the microcredit market, in some cases, there may be processes of their merger or acquisition in order to comply with the new requirements of the regulator for the authorized capital.

Fourth

To reduce the debt burden of citizens (CDN), the National Bank established the debt burden ratio of borrowers of microfinance organizations. The maximum value of the debt ratio is 50%, so the debt load should not exceed 50% of the total official income of the borrower.

“It should be noted that at the initial stage of the discussion of the CPA, the regulator planned to extend it to all loans without exception, including those provided for business purposes. Given the specifics of microfinance institution borrowers, this restriction would jeopardize the existence of the entire microcredit sector, as well as government support and development programs for small and medium-sized businesses, since 85% of the microfinance organizations loan portfolio consists of entrepreneurial loans. In a dialogue with the regulator, we were able to defend the interests of the microfinance industry, as well as small and medium-sized enterprises that receive financial support in the form of microloans for business development, ”commented the head of the Association of Microfinance Organizations.

Currently, KDN apply only to unsecured consumer loans to individuals. At the same time, the National Bank established a ban on providing loans to citizens with incomes below the subsistence level by dividing the calculation of the borrower's KDN into two stages, the first, assessing the borrower's solvency, and the second, calculating the KDN.

For recipients of targeted social assistance, the calculation of the income tax will be made solely on the basis of official income data.  

Fifth

The law introduces a ban on the collection by microfinance organizations of commissions and other payments related to the issuance and servicing of microloans, it is only possible to charge interest on a microloan and penalties for violation of credit obligations.

At the sub-legislative level, a new formula for calculating the annual effective interest rate (HESV) has been established for microfinance organizations. At the same time, the limitation on the maximum size of this rate to 56% remained unchanged.

“According to our calculations, taking into account the new formula and the limit value of the annual effective interest rate, microfinance organizations will be forced to lower interest rates on microloans in order to comply with the HESV limit of 56%,” said Yerbol Omarkhanov.

According to him, all of the above changes are aimed at protecting the rights of consumers of financial services, creating a transparent and regulated market for non-bank credit organizations. At the same time, a favorable legal regime should help increase the population’s access to quality microfinance services.

At the same time, the Director of AMFOK suggested that further tightening of regulation of the microfinance industry would not happen or would correlate with the simultaneous creation of additional opportunities for the sector with a view to its further strengthening and development.

He also stated that according to statistics, the loan portfolio of microfinance organizations has increased by 26% since the beginning of the year, amounting to 277.3 billion tenge at the end of the third quarter.

“We believe that in 2020 the dynamics of microcredit market growth will continue, although with a slight slowdown associated with the new regulatory requirements of the regulator,” added Erbol Omarkhanov.

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