The Federation Council and the Central Bank have developed a joint measures to lower the cost of microcredit

The Federation Council and the Central Bank have developed a joint measures to lower the cost of microcredit

MOSCOW, March 2. The Federation Council together with the Central Bank formulated proposals aimed at reducing interest rates on microloans and protect the rights of borrowers. The decision was taken at the plenary meeting of the chamber following the consideration of the response of the Bank of Russia on the request of the Council of Federation on regulation of activities of microfinance institutions (MFIs).

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On 10 February, the Federation Council has sent the Central Bank a request concerning rates of microfinance institutions. The paper noted that “currently, the interest rates on individual loans issued by microfinance institutions, comes to 880% APR”. “As a result, the loans issued by microfinance institutions at exorbitant rates of interest are ruinous in nature, which leads to the impossibility of fulfillment of obligations by their maturity,” said senators and suggested the Central Bank to “take steps to normalize the situation with interest rates in the lending market”.

On February 22 I received a reply signed by the Chairman of the Central Bank Elvira Nabiullina, containing detailed analysis of the situation and a number of specific proposals. The result of the joint efforts of the senators and the Central Bank needs to be several initiatives to streamline the work of MFIs and to protect the rights of their clients.

To limit the cost of borrowing

Members of the Federation Council instructed the first half of April, 2016 “to come up with a legislative initiative to reduce the threshold relations of interest accrued to the loan sum from four times to twice”.

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As noted in his letter on Friday that starting from March 29 “for MFOs prohibits charging the borrower – the physical person of interest and other payments under the contract of consumer credit, the repayment term of which does not exceed one year, if the amount of accrued contract interest and other payments will reach four times the amount of the loan”. In her opinion, should in future reduce this limit to twice the amount of the loan.

With regard to marginal rates under the so-called “payday loans” (up to 30 thousand rubles up to 1 month), they offered to leave at former level – up to 880% APR. According to the head of the Central Bank, the high cost of this product is marked in many countries and is associated with its characteristics. “In Europe, the interest rates on these products range from 0.8 to 3% per day”, – said Nabiullina. In the Central Bank are confident that with the timely repayment of such loan diligent the borrower will not be affected.

To develop standards for MFIs

Until September of 2016 senators plan “to consider the legislative giving the Central Bank the authority to determine the standards of granting of microloans, including limiting the number of loans per borrower and the number of prolongations in a year”. The Central Bank believes such action to be justified, because it “will avoid permanent refinancing the same borrowers that will encourage MFIs to develop a more qualitative credit policies”. Nabiullina also proposed to provide “credit institutions and microfinance companies access with the consent of the borrower to data via his personal account on the portal of the Pension Fund of the Russian Federation and Federal tax service” to the creditors were able to evaluate the creditworthiness of customers.

To punish illegal lenders

In April 2016, the senators mandated to consider “legislative strengthening accountability for individuals found to have multiple illegal consumer lending, microloans, and legal entities engaged in the provision of microloans that are not included in the state register of microfinance organizations”.

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According to the Central Bank, a significant portion of MFI – illegal lenders. Nabiullina also noted that “the conclusion of the transaction the entity beyond its legal capacity, as a General rule, entails invalidation” in court. Senators consider that it is necessary “to fix the check of legal capacity of the person issuing the credit.”

The Federation Council will send a letter to the interior Minister Vladimir Kolokoltsev with a request to inform the house about the Agency’s results on suppression of activity of illegal lenders.

House speaker Matviyenko noted that the whole of last year the Ministry of internal Affairs conducted the check and suppress the activity of so-called “asphalt” of microfinance organizations, which are not included in the register of the Central Bank and carry out issuing micro-credit illegally.

“Please prepare a substantive letter explaining the legality and illegality of their actions to inform us on the outcome, how many of these organizations closed, what measures have been taken”, – said the head of the Federation Council, referring to the heads of specialized committees.

Matviyenko also asked the senators during the regional week to meet with the leaders of the interior Ministry, the regional offices of the Central Bank and to agree on a joint action programme. “Not about a single PR campaign, but the systematic work,” she said.

To adopt a law on collectors

The state Duma recommended to accelerate the adoption of the draft Federal law “On protection of rights and legitimate interests of individuals in the implementation of activities to repay debt” and laws-satellites, made on February 17, the Chairman of the Federation Council Valentina Matviyenko and state Duma speaker Sergei Naryshkin. The document regulates the rules of the collectors, in particular, limits the time and frequency of communication with debtors, prohibits to put upon them psychological pressure.

Law enforcement practice

And the Central Bank, and in the Federation Council I understand that after change of rules of MFI of them could end up in illegality. In this regard, law enforcement agencies recommended “to intensify the interdiction of illegal consumer loans, taking into account the fact that many MFIs in the tightening of regulation may go to the shadow sector of the market.” Choose the senators also intend to monitor the situation. After 2 months decided to hold an extended meeting of the Committee on budget and financial markets with the participation of the Central Bank and all concerned agencies to discuss the current legal practice.