Online loans market in Kazakhstan shrank, but remained in the ranks

Over the past year and a half, the loan portfolio of organizations providing small unsecured loans for a short period has decreased from 100 billion to 25 billion tenge

The estimate is approximate, since previously such companies were not considered microfinance organizations (MFOs) and, accordingly, did not submit financial statements to the authorized body. Official data are available from the second half of 2020, explains Anatoly Glukhov, director of the Kazakhstan FinTech Association.

The slowdown in the market is due to regulatory changes that seriously affected the credit participants. Until 2020, loans to the population could be provided, among other things, by unregulated lending entities: online payday loan companies, pawnshops and credit partnerships. Since July 2020, only players who have passed the registration are allowed to lend to the population on a professional basis. Companies from the payday loans online sector had to register as an MFI, pawnshop or credit partnership, and also register with the regulator. In March 2021, in accordance with the adopted amendments to the microfinance legislation, the period for obtaining licenses by such companies ended, after which they are officially recognized by financial institutions.

The new status, as usual, brought its pros and cons. Participation in the regulatory perimeter was a positive development. This gave an understanding of where to move on. The negative one is the increase in pressure on capital. According to the new rules, from January 2021, the minimum amount of the authorized capital of MFOs is 100 million tenge, with the exception of organizations that were registered before 2020. They were allowed to increase their authorized capital until 2023.

The innovation had a significant impact on the market, says Glukhov. “It is difficult to assess the entire market, since online loans are also provided by previously operating offline MFOs. But if we talk about the "Kazakhstan FinTech Association", then a number of creditors left the market, and the number of members actually decreased by 2 times, from 25 to 13 organizations, - the source said. “This dynamics was due to the difficulties of doing business under quarantine conditions, the constant tightening of microfinance legislation, and the reorientation of investments to more liberal and predictable markets in other countries.”

Another important point for online lending companies is related to the limitation of the lending rate. Since its inception, the online payday loan market has been a lending freelance. The rates corresponded to the world practice of 1.5–2.5% per day. Companies deliberately avoided comparing with interest per annum, emphasizing high credit risks and funding costs, as well as a more risky borrower profile, which is included in the cost of the loan.

In 2016–2018, the growth in the issuance of online payday loans, along with pawnshops and credit partnerships, in the absence of regulation, far outstripped the issuance of loans by STBs. Technology allowed fintechs to quickly assess borrowers and lend small amounts. The market was driven by an unsatisfied demand for microloans, an unoccupied niche, rapid Internet penetration and the tightening of consumer lending conditions by banks.

Apparently, second-tier banks did not like the explosive growth of online lending, although it was said that these are different niches. Online lenders work with individuals with no credit history or those who are denied by banks. A loan, as a rule, is taken for a short period (up to 30 days) - to bridge the cash gap.

Meanwhile, fintechs were making big plans to increase the size of loans. Many kept the “ceiling” of issuance at 100-200 thousand tenge, but planned to raise it to 300 thousand for reliable and loyal customers. In terms of the amount issued, they began to enter the niche of MFOs, some of which were opened by STBs. One way or another, in 2018, information noise intensified about excessively high lending rates and the uncontrolled growth of the population's debt burden. It led to the inclusion of companies with online loans in the regulatory perimeter and equated them in the regulation with other MFIs.

Market Challenges

The regulations obliged online lenders to keep the effective rate of remuneration within 56%. However, the restrictions do not apply to microcredits issued for a period of up to 45 days in the amount of not more than 50 MCI (146 thousand tenge), provided that the agreements comply with the norms determined by legislation. We are talking about limiting the amount of remuneration, penalties and the maximum debt of the borrower. According to Glukhov, such a step is quite logical, since the mathematical formula for calculating the effective rate, as well as the economic model for achieving profitability, does not allow such organizations to function in other conditions.

Nevertheless, the introduction of restrictions to prevent the growth of the debt burden of borrowers increased competition in the online lending sector, Glukhov notes. As a result, the loyalty of good, non-overdue borrowers "has acquired a very important, one might say, decisive character for all creditors." For this reason, online lending companies began to adapt business models and reduce risk appetite, which immediately affected the parameters of loans. Against the background of a decrease in business profitability, the amount issued decreased from the maximum values ​​to 50 MCI.

And still, the market managed to show good growth. According to the First Credit Bureau, the portfolio of microloans issued for up to 50 MCI and up to 45 days amounted to 61.5 billion tenge at the beginning of 2020, and already 71.9 billion at the beginning of 2021. On average, loans are issued for 40 days for the amount of about 40 thousand tenge. Taking into account the fact that for small loans a different calculation of the problematicity of the portfolio is applied (not 90+ days, as in STBs, but delays in the first payment - FPD), the indicator was about 13% for the third quarter and 8% for the fourth quarter of 2020.

The market faces new challenges. At the dawn of its formation, poor financial literacy of the population, distrust of online loans, and low Internet penetration in the regions were named as development barriers. Now it is important for the sector to develop, together with the regulator, anti-fraud mechanisms. “Despite the small share of such cases, which is less than 0.1% of the total number of issues, this issue is relevant, since the injured party, in addition to the creditors themselves, are consumers,” says Glukhov. The association carried out procedures to consider such cases and minimize their consequences. In parallel, MFOs are introducing into the lending process an algorithm for identifying borrowers by biometric parameters using photo and video filming.

“Another significant challenge, I would call the building of the correct interaction of market entities with the regulator, judicial and other state bodies. Unfortunately, on the ground, there are cases of ambiguous interpretation and application of existing legislative norms, ”the interlocutor notes.


Funding remains an important issue for the market. Earlier, company representatives complained that the lack of regulation is holding back the interest of investors who want to understand the industry's prospects for 5-10 years ahead. It appears that the regulation has not resolved the funding issue. According to Glukhov, in the current conditions it is extremely difficult to foresee the future not only for 5-10 years, but even for a shorter period. The quarantine and state of emergency "have demonstrated many vulnerabilities for both consumers and lenders." In addition, microfinance legislation has been conceptually changed 5 times over the past two years. Considering that the main financing came from foreign investors and the profitability and economic model were included in the economic calculations on the cost and terms of funding, based on the current conditions, such frequent changes in the right margin, especially in terms of interest rates, without providing a sufficient transition period “significantly reduced investment attractiveness of Kazakhstan for external investors ”.

At the same time, Glukhov also notes some positive aspects. MFIs now have the legal ability to raise capital in the domestic market through the issuance of shares or the placement of bonds. Some directions are already being implemented - bonds have been placed on KASE and AIX, the issuers of which are IFOs, and the investors are residents of Kazakhstan.

The prospects for the further development of the online lending sector should be considered in the wake of the evolution of the entire microfinance industry. “I think that transactions with electronic money and prepaid electronic payment cards can develop. It is possible to expand the list of permitted types of activities, including endowing MFIs with new functions, such as making payment and exchange transactions, ”Glukhov said.

In addition, in his opinion, the regulator has done a great job of cleaning up the market, increasing its transparency, and increasing the opportunities for bona fide players; a separate large block of legislative initiatives to protect the rights of borrowers has been implemented. Since March 2021, a balanced system of relationships has been functioning in microfinance, taking into account the interests and priorities of the regulator, consumers and lenders. The population's demand for a variety of credit products, including online microloans, remains high, and meeting this demand is part of the financial balance, and this factor is taken into account by all stakeholders.

The introduction of STBs of short-term alternative loans is extremely difficult, and often economically impossible due to the high cost of attracting new customers through Internet marketing, subsequent processing and servicing of such applications, the head of the association believes. It is necessary to take into account the existing direct and indirect restrictions for banks both on the effective rate and on risk control, given that they are depository institutions.

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