Financial consultant explains growth of micro lending

In the fourth quarter of 2021, Russians took advantage of 11.2 million microloans worth a record RUR 150.9 bln ($2 bln), according to MiR, the market’s largest self-regulatory organization, RBC reports.

Pavel Byednyakov / RIAN
Pavel Byednyakov / RIAN

The growth of micro credit is a clear indicator that the economy is struggling, warns Svetlana Samoilova, a financial expert and co-founder of the Finliberty school of independent financial consultants.

According to Rosstat federal statistics service, at the end of 2021, Russians’ incomes grew by 3.1%, while inflation reached 8.4%; food prices accelerated by 10.2%.

“Obviously enough, people have to borrow from MFIs because their incomes cannot keep up with inflation, with food and consumer goods prices growing so fast,” the specialist explains.

Furthermore, in the fourth quarter of last year, banks hiked loan interest following the rise in the Central Bank key rate. At the same time, lenders have tightened their rules for approving loan applications, which also led to an outflow of borrowers from the banking sector to the microcredit market.

This trend can significantly increase Russians’ debt load, which is high enough already,” Svetlana Samoilova warns, “especially since payday loans often involve extremely high interest and fees, even though this sector is regulated by the Central Bank. Over time, extreme debt burden on borrowers is bound to lead to an even greater contraction of consumer demand and become one of the factors in slowing down economic recovery. People will not have enough money to buy what they need and pay back their loans at the same time.”

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