Why, against the backdrop of rising incomes, citizens still take out loans at high interest rates
In May, microfinance organizations (MFOs) approved loans to clients for 81.4 billion rubles. This is evidenced by the Scoring Bureau data. This is the maximum volume of issuance over the past year and a half, according to the National Bureau of Credit History (NBKI). Borrowers have become more active and continue to borrow from microfinance organizations. MK found out from experts why increasing wages and increasing incomes did not lead to a decrease in the need for microloans among Russians.
In the first quarter of 2024, real disposable incomes of compatriots increased by 5.8% compared to the same period last year, Rosstat reported. In the fourth quarter of 2023, revenues increased even more — by 7%. Real wages rose last year by a five-year record 7.8%. However, despite these inspiring figures, Russians cannot refuse microloans, which are issued on much less favorable terms than bank loans, and have even increased the number of applications to microfinance organizations. According to the Scoring Bureau, in May loans worth 81.4 billion rubles were provided to individuals under 6.34 million contracts. The issued volume of microloans reached a record level over the past year and a half.
Why did Russians rush to get microloans, despite rising incomes? Financiers point out that, let’s say, less discerning citizens apply for microloans. Thus, according to stock market expert at BCS World of Investments Evgeniy Mironyuk, MFO clients are less involved in choosing loan options with low rates and do not delay applying for a microloan: the fact of quickly receiving money is important to them.
Human rights activists remind us that it is less prosperous and more socially vulnerable Russians who turn to microfinance organizations. “The growth of microloans issued at usurious interest rates indicates that the declared growth in the population’s income apparently does not affect those who are the most vulnerable and poorest in Russia,” says Dmitry Yanin, Chairman of the Board of the International Confederation of Consumer Societies (ConfOP). “There is no other way to explain the fact that, against the backdrop of rising average salaries, people are borrowing record amounts at hundreds of percent per annum.”
This conclusion is confirmed by a comparison of citizens' incomes with the inflation rate. For example, according to Rosstat, in 2023, the population's income grew by 5.4%, and inflation was 7.42%. The same discrepancy remains in the current year. The price increase by June 17 was 8.46%. Accelerating inflation «eats away» the incomes of the least well-off citizens, forcing them to take out small loans. «Most likely, the growth of borrowers is observed in the category whose wages were not indexed by employers,» suggests Freedom Finance Global analyst Vladimir Chernov. Regulatory news could also influence the interest of Russians in microloans. Since the conditions for calculating the debt burden indicator (DBI) of potential borrowers for MFIs change from July 1, they could also simply increase the number of loan approvals for clients with a high debt burden. Russians who urgently needed money could reason in a similar way: someone could try to get a loan before the terms for issuing loans become stricter and before the key rate increases, so that its servicing would be cheaper, the analyst pointed out.
Despite the record growth in microloan issuance, the emergence of a “bubble” and the subsequent crisis is unlikely to threaten this market. “The volume of the MFO loan portfolio is extremely small compared to the entire retail lending market in the Russian Federation,” says Alexey Volkov, marketing director at NBKI. — Currently, the total loan portfolio of microfinance organizations is about 500 billion rubles, while the size of the portfolio of all types of loans to citizens has already exceeded 35 trillion rubles. Thus, the microfinance segment does not have a significant impact on the Russian retail lending market.”
In general, lending can partly be called the engine of the country’s economic growth, because with an increase in consumer spending, the country’s GDP growth rate increases. According to Chernov, given a normal level of debt, an increase in the number of loans from microfinance organizations should not put serious pressure on citizens. However, borrowers with a high debt load are at risk: they may go bankrupt if they incorrectly calculate their financial capabilities during a period of high inflation rates in the country.