Changes to reserve requirements on MFO loans

The Bank of Russia has raised reserve requirements on the so-called payday loans granted by microfinance organisations (MFO) and has concurrently introduced softer reserve requirements for loans issued to small and medium enterprises (SMEs).

The regulatory changes were introduced by Bank of Russia Ordinance No. 4054-U, dated 28 June 2016, ‘On the Procedure for Microfinance Organisations to Build Up Loan Loss Provisions’, available on the BoR website.

The new regulatory document singles out two types of indebtedness and the amounts of relevant reserves:

• households’ indebtedness under payday loans: higher required reserves are now introduced as regards debt of individuals who are not individual businesspeople
• indebtedness of SMEs: softer reserve requirements are established as regards legal entities and individual businesspeople.

By making these decisions, the Bank of Russia aims to spur SME lending coming from MFOs and, at the same time, to disincentive payday loans as a high-risk, high-interest market segment.