MFOs transform business models and reduce payday lending: Q3 results
As of the end of 2019 Q3, growth of microfinance organisations’ (MFO) micro loan portfolio slowed down: it expanded by 6% to total 201 billion rubles. These data are given in the new issue of the Review of Key Indicators of Microfinance Organisations.
New micro loans disbursed during Q3 totalled 103 billion rubles, which is the same as in the previous quarter. The share of pay day loans in overall disbursements shrank from 44% to 40%, while the share of long-term retail loans increased from 45% to 50%. The average pay day loan was up from 7.6 to 8 thousand rubles, while the average long-term loan reduced from 17.9 to 17.5 thousand rubles. That was the response of the market to another package of legislative changes to become effective from the second half of the year: these amendments are aimed at decreasing the maximum amount of debt on consumer loans and their cost. In this regard, companies are gradually transforming their business models to issue loans for over 30 days at lower interest rates.
The regulation of MFOs’ operations that promotes lending to SMEs helped maintain the share of such loans in MFOs’ overall portfolio at the level recorded in the previous periods — 18.1%. Average loans in this segment grew by about 25% over the past quarter: from 1.2 to 1.5 million rubles to legal entities and from 0.95 to 1.2 million rubles to individual entrepreneurs.
To enhance their efficiency and reduce costs, MFOs continue to develop extensively their digital sales channels, with online loans accounting for one-third of MFOs’ total lending. The online channel in the pay day lending segment slightly expanded its share in Q3 (from 62% to 63%), while it increased more notably in the long-term lending segment (from 13% to 17%).
The legislative changes to become effective limit the scope of persons consumer loan claims may be assigned to and prohibit creditors demanding that borrowers fulfil their obligations under consumer loan contracts if related claims were assigned to any persons beyond this scope. These amendments promote active development and improvement of overdue debt management processes by MFOs. The share of overdue debt in MFOs’ overall portfolio increased by 1.4 pp in Q3, reaching its peak for over 2 years (28.7%). The reason for this is that MFOs are now handling overdue debt themselves more often and assign lower-quality debts to professional collectors, which is evidenced by a rise in the discount in the case of disposal of claims under micro loan contracts that totalled 91.2% across the market over the first 9 months of 2019 as compared to 87.5% in the previous year.
Beginning from 1 October 2019, MFOs should calculate the debt burden for extending micro loans in the amount of 10 thousand rubles and more, which will enhance the quality of the micro loan portfolio, and will contribute to the decrease in overdue debt in the long run.