Boostra, a microfinance provider founded by businessman Sergei Smelov, is one of the most notable Fintech companies in Russia. The company is among the pioneers of the zero-interest lending concept and, after reaching the nationwide level, it has been able to create its own full-fledged scoring service (customer paying capacity evaluator) online in just six months. Read on to learn about the company’s background, achievements and future plans.
Can a creditor earn money from zero-fee loans?
The microlending market in Russia is on the rise. The amount of payday loans and instalment loans is expected to grow 15–20% this year. Analysts attribute this market growth to the high demand for microfinance services in Russia, especially in the online segment. Instant lending allows borrowing a couple of thousand rubles for essentials until the payday any time. Microloans make it possible for hundreds of thousands of Russians to maintain their lifestyle.
Honest Money, a microlending company from Samara, was one of the pioneers on the Russian online lending market. It was among the first microlenders in Russia to use a marketing strategy that eventually became one of the biggest trends on this market. In 2011, the company offered first-time borrowers interest-free loans for 16 days. Borrowers would have to pay for the lending services (the standard 1% interest rate in Russia) only if they fail to pay back in time. The company did not lose profit but rather increased it. Free loans attracted customers and the high quality of the service prompted them to use it again and again.
“About 65% of our customers come back. We have loyal customers that have been with us for five and even nine years,” says Honest Money and Boostra founder and CEO Sergei Smelov.
Initially planning to go into the finance business, Smelov founded a mortgage broker agency in Samara. But soon he realized that the regional market lacks companies offering loans. In 2010, one rapidly growing microfinance company was Bystro.Dengi. A similar business that Smelov created based on local specifics was named Honest Money. By the onset of the coronavirus pandemic in Russia in 2020, the company was a top three microloan provider in Samara.
From offline to online
When the pandemic began, microfinance offices remained closed, and customers started to take out loans online more actively.
“We also staked on online lending and started to develop Boostra online,” Sergei Smelov recalls. “Knowing that competition on the market is really high, back in 2019 we set a goal to quickly create a full-scale and attractive financial service that would give out loans only based on a photo of a customer’s passport and operate quickly and without fail.”
Microfinance businesses online are substantially different from offline microlending. At a retail shop, staff can see the customer in person, take their photo, scan their passport and request other documents if necessary. Online services are often targeted by scammers who try to borrow money in another person’s name or provide inaccurate personal data because they have no intention to pay back the loan. To recognize scammers online, a quality scoring system is needed to check clients against dozens or even hundreds of parameters, detect their location and assess their credit worthiness and actions on the internet.
“We managed to create a full-fledged service in just 6 months. Boostra’s portfolio is growing by 16% a month and the payback is at a very decent level,” Sergei Smelov says.
Outsourcing turned out to be a viable solution for the company.
“The company needs to be flexible and be able to form a team of skilled experts who can work remotely,” Sergei Smelov explains. “The main difficulty of working with a remote team of IT experts is that all team members need to work in sync. But this problem can be solved by using a quality management system. We have created a strong team and most likely, Boostra will soon make the top-20 of Russian microloan providers in terms of the volume of loans.”
Helping the debtors
The Russian microfinance market is heavily controlled by the Central Bank. On January 1, it introduced macroprudential limits for companies that give loans to clients whose debt-to-income ratio is 80%. In addition, starting in the summer 2023, Russia will again limit the maximal loan interest rate: it will be reduced to 0.8% per day from 1% per day. With these measures, the Central Bank wants to reduce over-indebtedness while fearing a growth in the number of unpaid loans which could result in social tensions. But it’s not that simple.
“It is not always possible to reduce the risk of bad debt by limiting the issue of loans,” Sergei Smelov explains. “Yes, microlending organizations do not give loans to those without income. But even clients with a stable salary might find themselves in a situation when they cannot pay off their debts.”
The cause lies in the debtors’ inability to plan their budget and control their expenses. To help them, Smelov is planning to create a special advisory service on finance management.
“We are working on an automated system to manage personal finances, a service which will help people to manage their money. It will be a hybrid between a finance consultant, accountant and a planner,” Sergei Smelov says. “It will give advice on whether an expense should be made, and even prevent an unnecessary purchase. It will say if it would be viable to take a loan or not in a certain situation.”
By using this service, the clients of microfinance organizations, as well as those who have difficulties with financial planning, will be able to manage their money better and prevent over-indebtedness.
Thus, Boostra does not only develops its business, but also helps those who do not know how to plan a budget. Such social-oriented approach helps the company remain stable during crises and reduce the risks when the state regulation of the market tightens.
By Olga Koltunova