Q1'19 Update on Microfinance and Payday Loans in Russia
The Central Bank of Russia (CBR), the country’s main financial regulator, has published aggregated statistical data on the microfinance industry in Russia for Q1'19. The report includes data on microfinance organizations (MFOs) that are lenders registered with the CBR.
According to the report, MFOs in Russia issued a total of RUB 93.8 bln (USD 1.48 bln) in microloans in Q1'19. The total portfolio of microloans grew by 6% compared to the previous quarter, reaching RUB 174 bln (USD 2.76 bln).
The CBR notes that against the larger picture of bank loans, this number is relatively small. Microloans represent just 2% of the consumer-credit portfolio held by banks (even excluding mortgages). However, in comparison with Q1'18, the total loan portfolio of microfinance organizations has increased by a noticeable 45%.
The total share of non-performing loans (NPL 90+) has dipped slightly from 26.5% to 25.1% but remains within the range of the previous two years overall.
Portfolio by type of loans
Consumer loans account for the lion’s share of the total portfolio of microloans in Russia. Payday loans (PDL) represent 46% (blue bar on the chart below) of the total loan book, while installment loans (ILs) account for another 45% (orange). The remaining 10% is split between loans issued to individual entrepreneurs (yellow) and legal entities (grey).
- PDLs are defined as loans below RUB 30,000 (USD 500) for a term of fewer than 30 days.
- ILs refer to all other loans excluding PDLs.
Digital channels are already popular and continue to grow. In Q1'19, 34% of all new loans were issued via digital channels (such loans are referred to in the report as “online loans”) as compared to 32% in the previous quarter. Online loans account for 84% of PDLs. The average loan in Q1'19 was RUB 7,800 (USD 123).
The annual interest rate on PDLs has declined by almost 100% from 641% in Q4'18 to 546% in Q1'19. The main reason for this sharp move was the introduction of a 1.5% cap on daily interest rate becoming effective as of January 29, 2019. Starting on July 1, 2019, the daily cap will be reduced to 1%, which will further limit the effective annual interest rate to 365%.
Interest rates for other types of loans have slightly increased, indicating that lenders have been attempting to offset lost profit in the PDL category by raising prices for other products.
Revenue and capital
The aggregate net profit of MFOs in Q1 2019 has quadrupled as compared with Q1'18, reaching RUB 4.1 bln (USD 65 mln). The combined equity capital (“own capital”) of market participants has also increased, totaling RUB 90 bln (USD 1.5 bln). This brought the industry’s average ROE in Q1'19 to 18.5% (only 4.5% in 2018). At the same time, median ROE has dropped from 10.8 to 7.9% compared to the previous year, indicating that economic gains have accrued to a few market leaders at the expense of underperformers.
Sources of funds
In addition to its typically-reported statistics, the CBR has this time also published a general breakdown of funding sources for MFOs. According to the chart below, the balance sheet of an average MFO in Q1'19 consisted of funds sourced from individual investors (red), credit organizations (blue) and other legal entities (orange) in approximately equal proportions.
The average investment ticket reached RUB 24 mln (USD 0.3 mln) from legal entities (institutional investors) and RUB 3.5 mln (USD 0.05 mln) from individuals.
For those unfamiliar with the Russian microloan market, it’s worth mentioning that there are certain statutory limitations aimed at protecting retail investors that essentially restrict how much an MFO can raise from individuals. That’s why the CBR closely tracks this data.
Overall, the market for consumer loans issued by MFOs in Russia keeps growing steadily. The share of online (digital) loans is also on the rise, indicating that both consumers and lenders are becoming familiar and comfortable with fully-remote transactions.
Interest rates are declining slowly in tandem with the broader market but remain extremely high. We expect them to decline further with the new limits on maximum rates coming into force in the near future.