Civilized inevitably: how you will regulate the field of microcredit

Цивилизованная неизбежность: как будут регулировать сферу микрокредитов

The question of regulation of the microlending market in Ukraine becomes more urgent with each passing year. Popular services in the segment of Payday Loan (PDL) are gaining more positions in the Ukrainian market, but, like any financial instrument, they need a clear legislative framework that will protect customers and themselves microfinance institutions (MFIs).

Today in Ukraine there are nearly 1,000 microfinance companies, and their number is growing every month. By 2018, the market volume PDL-lending in Ukraine amounted to 1 billion dollars. At the same time, the average interest rate in the Ukrainian MFIs is around 600%, and the percentage of defaults is about 20%.

This suggests that the microfinance industry in Ukraine is waiting for the process of regulation, which has already successfully passed a number of countries, including nearest neighbours.

At this stage the key question – what government Agency will carry out regulation of the market of MFIs in Ukraine? Now such powers are assigned by the financial service Commission, but in the Verkhovna Rada in the first reading adopted the draft law No. 2413а “On amendments to some legislative acts of Ukraine on consolidation of the financial services market”, more commonly known as SPLIT. The document, in particular, provides for the establishment by the National Bank of Ukraine (NBU) the so-called mega-regulator, which will administer the banking sector and non-Bank institutions, including MFIs. While this idea is causing a lot of controversy. The proponents cite as an example the positive experience of the NBU to clean up the banking sector, critics fear that the tough measures of the national Bank will kill the whole industry.

Whatever the outcome of the epic split, we can expect that one of the first steps authorities regulation will limit interest rates. Judging by the experience of other countries that have already passed this process, corridor constraints, the widest. For example, in neighboring Poland, the maximum bet is limited to 803% per annum, and the sum is a modest $ 500. For comparison, in the UK MFIs have the right to credit a maximum of 292% per year and up to $ 25,000.

Today in Ukraine there are a lot of companies practicing the issuance of the first loan at 0.01%, using it as a marketing tool to attract customers. Large interest rates and fees start only from the second treatment to the company. The policy of low requirements for borrowers, the lion’s share of whom are customers with bad credit history, is often criticized by experts, but for this category of people PDL – the only way to get a loan. But the situation is changing, and with rising incomes, the percentage of defaults will inevitably decline.

Given the trend that the first dozen MFIs already started to prepare to enter the market of banking products (such as long-term loan), not to say that microfinance companies are not preparing for the new rules of the game.

The main thing – that the rules were the same for all and does not interfere with the development of the service of fast loans that is already praised by millions of Ukrainians.