Microfinance as an element of financial inclusion
The microfinance and credit cooperation market is not only one of the institutions to lend to households and small businesses, but also an important element of financial inclusion, Bank of Russia Deputy Governor Vladimir Chistyukhin stated at the 14th National Conference on Microfinance and Financial Inclusion.
There is no viable alternative to microfinance and credit cooperation entities in certain niches, such as lending to small businesses or the so-called start-ups in towns and countryside.
‘This is justified by statistics: a microfinance organisation (MFO) portfolio is made up by more than a third of loans to small businesses and by one-fifth of loans reimbursed by salary’, Vladimir Chistyukhin was quoted as saying.
In 2014, the Bank of Russia joined the Alliance for Financial Inclusion and is currently an active member of this international organisation. The Bank of Russia has developed indicators of financial inclusion for population and entrepreneurs. These indicators will be used to measure the level of financial services accessibility on various territories and take steps to increase it, if necessary.
While ensuring financial inclusion, the Bank of Russia adheres to the principle of proportional regulation. Thus, a more prolonged transition to a single chart of accounts (SCA) is envisaged for microfinance market players. If the bulk of financial market participants switch over to the SCA in 2017, then MFOs and consumer cooperatives will do it in 2018, and agricultural cooperatives and pawnshops – in 2019.
‘We provide more time for preparation and plan to train accountants to make the transition to the SCA and IFRS as smooth as possible for microfinance market players’, Chistyukhin noted.
The Bank of Russia is gradually introducing the requirements for ratios and reserves, has established a transition period for introducing the reporting requirements, and imposed penalties only for repeated failure to submit statements.
A legislative reform of MFOs and their division into two types – microfinance and microlending ones – is the most important innovation in implementing the principle of proportional regulation. The former will be able to raise funds from third parties, but will face heightened requirements; while the latter will be deprived of this opportunity, but supervision over them will be limited.
‘These are positive changes which, in our opinion, will allow us to restart the microfinance market. On the one hand, financial inclusion is of great importance for us, on the other hand, we encounter with the fact that microfinance organisations do not often comply with the rules, deceive the consumers because of the shortage of resources, knowledge and competence,’ Bank of Russia Deputy Governor told the conference.
In his statement Vladimir Chistyukhin also touched upon supervision over microfinance market players. Thus, amendments were made to legislation empowering the Bank of Russia to send instructions online, which allowed it to accelerate all the supervisory procedures.
The enactment of the law on self-regulatory organisations (SROs) in the financial market raises the question what authorities may be delegated to SROs. The Bank of Russia is concerned about the situation with the credit cooperation market comprising nine SROs. The Bank of Russia inspected them and revealed the misuse of compensation funds, the lack of control over their members and other violations.
In 2016, the Bank of Russia intends to hold inspections of the largest MFOs and continue liquidating non-performing participants in the microfinance market.