Microfinance market: medium-term loans on the rise

According to the Review of Key Indicators of Microfinance Organisations prepared by the Bank of Russia, 2018 Q1 saw a decline in the share of payday loans in the total amount of microloans extended by microfinance organisations (MFOs) to individuals. This was one of the results of the regulator’s policy aimed at curbing this segment’s growth.

The dynamics of this sector's indicators were also affected by market participants’ expectations of further regulatory restrictions on charging interest on short-term loans. MFOs focused on payday loans have to improve their scoring models and select their borrowers with greater responsibility, make their activities more efficient and technologically advanced, and adapt their business models to the conditions that they will face in the near future.

By the end of 2018 Q1, MFOs' core assets (microloan portfolio) reached 119.4 billion rubles, having increased by 23.9% over the previous 12 months (70.1 billion rubles as of end of March 2017) and by 5.9% over the first three months of 2018 (112.8 billion rubles as of the end of 2017).

Within the aggregate microloan portfolio, microloans to individuals traditionally have the largest share (79.7%), while payday microloans and medium-term consumer microloans account for 22.4% and 57.3% of the total portfolio respectively. As in previous periods, loans to individual entrepreneurs and legal entities account for nearly a fifth of the MFOs’ portfolio (10.8% and 9.5% respectively).

Microloans extended to individuals demonstrated the fastest growth rates of 28.1% over 12 months and 7.2% in 2018 Q1. As a whole, the portfolio of microloans to individuals grew on the back of increased demand for medium-term consumer microloans (+34.56% and +8% over the previous 12 and 3 months respectively). The share of payday microloans in the total amount of microloans extended to individuals in Q1 slightly declined (50.6% in 2018 Q1 vs. 52.2% in 2017).

In 2018 Q1, the number of organisations listed in the state register of MFOs decreased by 62 to 2209 institutions. During the first three months of 2018, 166 MFOs were removed from the register and 104 new market participants were added to it.