The National Bank of Ukraine is preparing for significant changes in the financial microcredit market so that, as it declares chairman Andrii Pishnyito achieve ensuring a transparent ownership structure of the market. According to him, there are a huge number of questions for companies that work in this area, especially during a full-scale war.
Can this market really be considered transparent and “Government Courier” found out how to solve the problems.
Alla Savyuk, president of the All-Ukrainian Association of Financial Companies, notes that the transparency of ownership structures is one of the key requirements announced by the NBU after the implementation of the SPLIT reform. She is sure that conscious market players will have no problems and will successfully continue their activities.
SPLIT is the liquidation of the National Commission for the Regulation of Financial Services Markets and the division of its control functions in the financial market between the National Bank and the National Commission for Securities and the Stock Market. According to the reform implemented in July 2020, control over insurance, financial and leasing companies, pawnshops, credit unions and credit history bureaus passed to the NBU.
For SPLIT, notes managing partner of Austin Law Firm Yevhen Poradathere were two reasons: the recommendation of the IMF in view of the relevant practice of the distribution of state functions in most EU countries and lack of success at the National Financial Service Commission in regulating the financial market compared to the National Bank of Ukraine and the NKCPFR, which in their segments managed to clean the banking system and the securities market of dishonest players and almost eradicate fraudulent transactions.
“Currently, non-bank financial institutions, which include those that provide microcredits, pass the transparency test: ownership structures were disclosed as early as 2021 and resubmitted to the regulator as of January 1, 2023. Until March 31 market participants are obliged to confirm the property and financial status of their owners. According to the results of the analysis of the documents, the regulator will make a decision,” says Alla Savyuk. Institutions that provide microcredits are not particularly worried about the test and are ready to pass it with honor.
But the leadership of the NBU and society have logical questions about these institutions. Andriy Pishny rightly points out that these firms provided loans at 1,400% per annum using the latest digital technologies. “And they are actually all designed to cover the immediate needs of a person who, for example, plays in a casino and needs to make a bet, and for this, money is needed quickly. This is real financial murder or slavery,” the head of the NBU is indignant.
Head of the Council of the Independent Association of Banks of Ukraine Olena Korobkova notes that the biggest danger of microloans is high interest rates, which can lead to a debt hole. “Insufficient regulation of the market led to the fact that even conscientious borrowers sometimes found it difficult to understand exactly what amount they should pay. Because, in addition to the body of the loan and interest, a person had to pay additional hidden fees and commissions, and in case of late repayment – fines that are calculated daily. The microcredit market has become problematic, the number of complaints to the regulator about the actions of such companies was large,” says the expert.
NABU notes that with the beginning of the war, the microcredit market stopped, but a year later it began to revive little by little. Currently, the activities of such companies are mostly aimed at returning previously issued loans. But there is also a demand for a loan, and it is growing. The procedure for obtaining a loan has become more complicated: companies call customers back to confirm the information in the questionnaire and try to cooperate with already verified customers.
Alla Savyuk emphasizes that people who play in casinos are an unattractive segment of customers. “Loans need to be repaid, and a gambler cannot do that. There is an official register of ludomaniacs, which is used by the gambling business. Therefore, VAFC suggests that the regulator discuss connecting to this register of credit institutions or integrating data from it into credit history bureaus. The market is interested in reducing its risks,” she notes.
Specialist notes that during the war and economic crisis, people judiciously take out loans for the most necessary goods. Many internally displaced persons lost their jobs. “Banks are not interested in such a client, and the only possible source of funds in case of critical need is a financial company. The calculation of the real annual interest rate, according to the NBU methodology, is not adapted for short-term lending (when the loan is issued for 15-30 days). Therefore, it is premature to draw conclusions about high-margin business during the war, when territories were lost and paying customers left,” she adds.
Andrii Pishnyi said that the regulator will not limit itself to measures of influence on such companies, but will propose to the parliament to make changes to the law on consumer lending.
First, the maximum size of the real daily allowance will be established interest rate – no more than 0.8% per day (currently for microloans it reaches 3.5%). Secondly, the NBU wants to receive a mandate for the right to establish minimum requirements for checking the borrower’s creditworthiness from financial companies. Most experts are sure that these will be the right decisions.
“The Law on Consumer Lending requires market participants to transparently inform about the cost of the loan and conduct an assessment of the borrower’s creditworthiness. However, the presence of such requirements, unfortunately, did not become a guarantee of safe use of microloans, taking into account the impulsive nature of decisions to use such a loan,” says Olena Korobkova.
The SAFC calls on the NBU to engage in dialogue and asks for an open discussion of these points. According to the head of the organization, market participants are ready to disclose and demonstrate how they assess the creditworthiness of clients. Currently, it is carried out more intensively, as investors are risking funds.
“The pre-war portrait of the client of microcredit firms is different from the present one. Nowadays, customers consciously take loans for smaller amounts in order to be able to repay them. It is important for them to keep the opportunity to receive funds when necessary,” comments Alla Savyuk.
The VAFC believes that a conclusion regarding the unacceptable level of default in the portfolio of such companies can be made if short-term loans are taken into account as of February 24, 2022. On the first day of the war in fact, the entire loan portfolio became defaulted (as in banks). And no scoring model could predict and predict the situation of full-scale military operations, as well as evacuation, occupation, blackout.
Olena Korobkova is sure: the positive thing is that in wartime, such companies began to pay more attention to the financial capacity of borrowers. “In my opinion, the legal ban on an unlimited number of microloans plays a positive role. It is not easy that the market is still in the process of adjustment, and this enables some firms to impose unfair lending conditions.”
It is hard to disagree with this statement. Alla Sav notes that non-banking institutions provide services only at the expense of shareholders’ funds, therefore they are low-risk. “So the requirements of the NBU for their activities should be differentiated. The transparency of ownership structures and the protection of consumer rights are keys to regulation and supervision, but in other areas, financial companies should be left with the possibility of maneuvering.”
The expert is sure that non-bank institutions are at the forefront of financial technology and, under favorable regulation, are able to be the first to create and offer innovative, high-quality affordable services.
