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Microcredit rates plummet sharply

The Central Bank-sponsored amendments to legislation limiting the interest rate on microcredits to 1% per day, or 365% per annum, came into force starting July 1, RBC reports.

Last week, the maximum allowed rate for microfinance institutions (MFIs) was 1.5% per day (about 550% per annum). Still, even 365% per annum is about 10-15 times the interest on bank consumer loans or credit cards.

On the other hand, short-term payday loans become far less profitable for MFIs with this rate. As a result, many of these companies will eventually move from the Pay Day Loan segment to Installments – medium term consumer loans used for buying household appliances, etc. This will automatically reduce the availability of microcredit: the terms will actually be the same as with regular bank loans, apart from the fact that some banks require official proof of income from the borrower when issuing certain types of loans.

In the first quarter of this year, the microfinance market in Russia grew by more than 50% to over RUR 140 bln ($2.2 bln), according to the Central Bank.

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