Central Bank threatens MFOs to strengthen fight against additional services
What the microloan market will look like in 2021
“The borrowers of short-term loans from MFOs are many times less likely to complain about the provision of financial services than, for example, the consumers of insurance services. They accounted for only 7% of the total number of complaints, and this is absolutely not a huge figure," Yevgeny Grishanin, the chief of staff of the country's chief financial commissioner, dispelled the myths around microloans. The representatives of the Central Bank and the chief financial ombudsman gave their own assessments of the relationship between citizens and MFOs during the pandemic, which “made them much closer”. Besides, the head of the consumer rights protection service of the Bank of Russia, Mikhail Mamuta, directly warned that the Central Bank will strengthen the fight against the imposition of additional services when issuing microloans. Read more about what the microfinance market will look like in 2021 in the material of Realnoe Vremya.
“We do not support lending to defaulted borrowers”
Will people go to “black” creditors? After all, are there always those who will be refused a loan (and even more so a bank loan)? This was the main question addressed to the head of the Consumer Rights Protection Service of the Central Bank of Russia, Mikhail Mamuta, from the community of players in the microfinance services market, who gathered for a blitz interview with the regulator during the traditional MFO Russia forum. In fact, it was the main intrigue of retail lending for the coming years: how and who to lend to in the face of declining incomes of citizens and what to do with those whose maximum level of debt burden (MPC) has crossed a critical line. The entire audience, where representatives of the largest MFOs gathered, was waiting for an answer.
Mikhail Mamuta did not shy away and gave an extremely simple and clear recommendation from the regulator. “We do not support lending to defaulted borrowers," he said, making it clear that if the borrower resorts to the services of black lenders, this step once again proves that he will not be able to return either the loan to a commercial bank or a microloan to an MFO. “This means that it will be defaulted," Mamuta explained.
In his opinion, such problem category of borrowers is forced to look for a way out of normal lending. “Here we need to look for another solution," he said cautiously, but did not rule out that these people will still receive the services of “black creditors”. “Their (black lenders') market share still remains, although it is gradually declining," he admitted.
In this sense, they are opposed by “white” retail microfinance lending. According to Mikhail Mamuta, the MFO market is “normally regulated and does not require systemic measures”. According to the Central Bank, today there are more than 1,300 MFOs in the register, which mainly issue short payday loans (the loan turnover was not named). Given the likelihood of over-lending risks, the Central Bank closely monitors compliance with the rights and interests of borrowers.
It has to be said that during the pandemic year, the number of complaints from citizens about MFOs was even lower than in 2019. According to the Department of Behavioural Supervision of Professional Lenders of the Service for Consumer Protection and Financial Services Accessibility of the Bank of Russia, the share of complaints against MFOs in the Central Bank last year amounted to 30,9% of the total number of complaints, compared to 49,6% in 2019. In 2020, as the dynamics of the receipt of citizens' appeals shows, it has significantly decreased. This suggests that transactions have become cleaner and more transparent.
Imposing additional services: how do MFOs make money?
Sergey Kolganov, the head of the Behavioural Supervision Department for Professional Creditors of the Bank of Russia's Consumer Protection and Financial Services Accessibility Service, noted that a reduction in violations was influenced by the conclusion of agreements with MFOs. According to him, by the beginning of 2020, 126 major participants in the microloan market had been selected, with whom road maps were signed to prevent violations in lending to borrowers.
“But with the onset of the pandemic, we saw a sharp increase in complaints," he said. “This was due to that many citizens lost their previous income, someone lost their job. People were faced with the problem of debt repayment," he explained the reason for the surge in complaints to the Central Bank.
According to him, a significant share of complaints — about 70% — fell on the collection of overdue debts. Sergey Kolganov did not specify in what they expressed. As they grew, MFOs developed standards on their own initiative for dealing with overdue debt, and as Kolganov said, “they took on a number of restrictions”. As a result, the number of complaints decreased to 30%.
Most of all, the Central Bank's supervisory services are concerned about the imposition of additional services on MFOs, Kolganov said. On the slides, he cited several common techniques that are reduced to replacing microfinance activities with additional services. As a result, they bring much more income than microcredit itself, he said.
“The borrower often does not have the opportunity to refuse due to technological features. At the same time, the client says that he was not going to take these services, but he was told that he would not get a loan in any other way," Kolganov said.
There are such incidents when a fee is charged for a service, when providing which the lender acts solely out of its own interests, does not create a benefit for the client, Sergey Kolganov demonstrated on the slides. “Sales monitoring shows that the client does not have complete information about the cost of the service, he is not given the opportunity to refuse the unnecessary, often the refusal of the service is not obvious," the head of the Central Bank department listed cunning tricks.
The Bank of Russia intends to withdraw such players from the market as soon as possible. “For ourselves, we set the goal — to speed up the deadline for taking supervisory measures for those organisations that do not see themselves working in the legal field," said Sergey Kolganov. According to him, such techniques reduce the credibility of the institution of microcredit.
Later, during the blitz interview, the head of the consumer rights protection service of the Bank of Russia, Mikhail Mamuta, confirmed that the Central Bank sees the need to combat the imposition of additional services and violations in the collection of overdue debts. “What will they do? The rule is simple: you break a lot, the supervision becomes intense. It is better not to," he advised.
Why are MFO clients less likely to complain about them than insurance clients?
After the words of the speakers, it seemed that additional services in microcredit are found at every step. But this is not the case. The chief of Staff of the Chief Financial Commissioner, Yevgeny Grishanin, clarified the scope of complaints: the commissioner's office (which maintains separate statistics from the Central Bank) received only 7% of the total number of appeals, which is 834 appeals for the entire year 2020. “And this is absolutely not a huge figure," Grishanin dispelled the myths around microloans.
For comparison, he cited the insurance market, where the number of disputes is really off the scale. “In 2020, 187,000 consumers of financial services applied for dispute resolution with financial organisations," the deputy financial ombudsman said. The financial commissioner considered consumer disputes with insurance organisations for all types of insurance (except for MHI) and with microfinance organizations (MFOs). The vast majority of applications were for OSAGO (mandatory civil liability insurance for vehicle owners) — 155,440, or 83% of the total number of applications. Most often, they are associated with the disagreement of citizens with the amount of insurance compensation.
Why are there few complaints about MFOs? According to the deputy financial ombudsman, the average check in these disputes is the lowest. If the client fights for insurance disputes for an average of 200,000 rubles, then in disputes with MFOs — for 20,000 rubles, related to the non-return of the fee for additional services. There are also requirements for 700 rubles, the representative of the financial ombudsman reminded, emphasising that they still do not bring a headache to the supervisory services.
Why do banks need digitalisation?
This year, the experiment on connecting credit institutions to the digital profile of citizens has continued. Let us remind that last May, the ministry of finance of Russia and the Bank of Russia launched a service that will allow citizens through the personal account of the Unified Portal of Public Services to remotely provide information about themselves to credit and insurance organisations and receive services completely in digital form without visiting offices. Through the new service, banks and MFOs will have the opportunity to obtain the necessary information stored about citizens in various databases (FTS, Rosreestr, Ministry of Internal Affairs, PFR, and others). Thus, remote interaction between customers and banks will be implemented without the need for additional documents.
As Lilia Belyaeva, the adviser to the microfinance markets supervision department of the Central Bank's Microfinance Market Department, said at the forum, 20 banks and 4 insurance organisations have currently received access to the digital profile of citizens. Another 30 banks have applied for the connection, but no one from the MFOs has yet received an entry. “Applications from 27 MFOs have been received," she said. The main difficulty is the insufficient capacity of the portal network, she explained.
What information is available in the borrower's digital profile? According to Lilia Belyaeva, now banks have access to 24 types of information that are necessary for issuing a loan, and 19 types — for issuing a loan. They include personal data, SNILS, information about wages from the PFR, and social support measures. According to her, they will be opened for the intended purpose of the loan. “If the company plans to issue a loan secured by real estate, it will not be issued information about the car," Belyaeva assured. By the end of the year, a service for the digital profile of legal entities will be ready, Belyaeva said. What information will be available in it is under discussion, but closed data on market turnover may also be included.
Now MFOs are increasingly conducting transactions without personal presence, and geographical boundaries are being erased. “This brings certain challenges and requires improving the identification procedure," Sergey Kolganov expressed concern. According to him, now the question of how to cut off fraudsters, so as not to harm bona fide citizens, comes to the fore.