Russians are increasingly resorting to microfinance services, with the share of microloans surging to a record 70% of the total borrowing market. The State Duma has approved a bill allowing microfinance institutions to issue mortgages as well.
According to Artem Genkin, Doctor of Economics, Professor, President of the NPO Center for Protection of Bank Clients and Investors, this trend has been prompted by the changes in the conventional lending market. In 2024, the Bank of Russia began to tighten controls, prohibiting banks to expand lending unnecessarily, and preventing borrowers from taking out “bad” loans, the expert told the OTR television channel.
At the same time, microfinance institutions (MFIs), like banks, are subject to certain rules, and the regulations are becoming increasingly stringent over time.
“Gradually, the same rules that regular banks have to comply with are being extended to the MFI market. Some of the measures introduced in 2024, in particular the surcharge for banks issuing certain types of high-risk loans, apply to both banks and MFIs already,” the expert emphasized. “Another thing is that MFIs have not yet felt the full burden of regulatory requirements like banks, at least due to the smaller scale of their operations.”
Artem Genkin does not believe that allowing microlenders to issue mortgages is an absolute evil, but the devil is in the details.
In the segment of bank mortgages, the regulator has been combating unfeasibly expanded options for preferential lending. When it comes to microfinance organizations issuing mortgage loans, the complexity lies in a different matter.
“Sooner or later, they will face the same serious requirements for loan security. Microlenders will gradually come to equally serious scoring systems when dealing with mortgage borrowers, and will also issue loans only to the best of them,” the expert emphasized.
Artem Genkin also explained that self-imposed lending bans and similar measures will help a certain portion of borrowers but will not solve the problem of debt overburden. Previously, many had high hopes for loan restructuring and the personal bankruptcy procedure but these measures also did not become a magic bullet.
At the same time, in Russia today, the over-indebtedness of the population is not as high compared to other countries. The debt of households relative to GDP is now 22.5%, which is not 60% as in China and the EU, 70% as in the United States, or 130% as in Switzerland, the expert noted.