Market participants discuss at expert council’s meeting how pandemic affects microfinance
The period of the anti-coronavirus restrictions has negatively affected the microfinance industry. However, already in June demand for small loans nearly returned to its pre-crisis level. These issues were discussed in the course of the meeting held on 14 July 2020 by the Expert Council for Microfinance and Credit Cooperation.
Microfinance organisations (MFOs) had to face an increase in overdue debt and started to tighten their risk policies in order to mitigate losses, raising disbursement thresholds and thus preventing growth of households’ debt load.
Trends in the microfinance market have been driven not only by demand-side factors, but also by the extent of the penetration of digital service channels. While the restrictions have become an additional factor of development for a range of MFOs operating online for a long time already, the situation has turned out to be much worse for pawnshops forced to close their offices and consumer credit cooperatives (CCCs) lacking opportunities for online work. In order to support the digitisation in microfinance, the Bank of Russia is taking efforts to overcome barriers in the development of the online microfinance segment and is engaged in the creation of a digital platform for CCCs that would enable sharers to participate in the CCC work fully remotely.
The regulator put a special emphasis on the measures supporting MFOs financing small and medium-sized enterprises (SMEs). SMEs have been demonstrating increased demand for loans needed to offset the period of the revenue downturn and cover their cash shortages. The Government has granted additional subsidies to such MFOs in order to aid SMEs. The Bank of Russia reckons that companies will be able to utilise these funds prudently.
The Expert Council also discussed overdue debt recovery issues, the creation of pseudo-financial organisations through changing the CCC form, as well as intermediary services offered by pseudo-brokers and lead generators whose activity is becoming a system-level problem for both the microfinance market and consumers. The Bank of Russia proposed possible solutions to address these issues.