The era of easy credit may be drawing to a close in Kazakhstan.
As concerns mount among government officials over the scale of consumer debt, changes are being made to the law to tighten rules on taking out loans.
Representatives for the State Agency for the Regulation and Development of the Financial Market say that the problem is getting out of hand.
“More and more people have begun to buy goods in installments,” Madina Abylkasymova, the head of the agency, told lawmakers on October 20. “And at the same time, the size and number of loans is growing, as is debt overall.”
According to the regulator, the average value of unsecured consumer loans has increased by almost 10 percent – to roughly 1 million tenge ($2,200) – since the start of this year. The proportion of such loans exceeding a value of 5 million tenge has risen to around 12 percent of the total. All this in a country where monthly salaries stand at an average of $750.
The legislation that the financial market regulators have brought forward came to light two months after President Kassym-Jomart Tokayev delivered a speech in which he expressed his dismay at the “excessive debt burden taken on by the public” and demanded the adoption of “new systemic measures.”
This is not Tokayev’s first run at this issue.
In 2019, he ordered the government to either write off or curtail the loans of up to 500,000 low-income debtors.
The biggest debts tend to be seen in the online microcredit sector. As of September, the volume of such online-based credits stood at around 200 billion tenge ($430 million). Of the million or so people who borrow money in this way, around one-third have trouble with making repayments, regulators say.
An interest cap of 50 percent has been imposed on these kinds of loans, but even that is far too much for many to afford.
“One of the main reasons for the growth of problem debt is the issuance of loans to citizens without a proper income,” Abylkasymova told lawmakers.
Online micro-loans – payday loans in essence – are often issued remotely and without a rigorous check of the creditor’s solvency, she said.
The new rules now going through parliament, and which could come into effect by January 1, place greater burdens on lenders. The government will set interest rates that micro-finance organizations can charge that are lower than those currently in force. No figures have yet been specified. Improved borrower assessment protocols will require lenders to ensure credit recipients are in a position to repay loans. People who have delayed repaying outstanding loans for more than 90 days will not be eligible for new loans without providing collateral. This restriction currently only applies to people with earnings below the minimum wage of 70,000 tenge ($150).
While this initiative may be beneficial in the aggregate, many will mourn the passing of quick and easy credit.
Olzhas Zhumabekov, a courier for Glovo, a food delivery company, lives in the suburbs of Almaty. He makes less than 300,000 tenge ($650) a month and often finds he needs to take out a loan before the month comes to a close to cover his outgoings. Microfinance lenders are all too ready to accommodate.
Zhumabekov takes out 10-day loans at a rate of 14 percent. This is far more onerous than a bank loan, but the paperwork is far simpler. And begging for help from friends is not an option.
“You yourself know how difficult it is to borrow money, even if it’s from close friends or relatives – usually everyone refuses,” Zhumabekov told Eurasianet. “It’s embarrassing to ask people for money.”
Zhumabekov worries that the incoming bill will put micro-loans out of reach not just for defaulters, but also for bone fide borrowers who just happen to have meager incomes.
"I always pay my debts on time because I understand that this could have a direct impact on my chances of getting money next time,” he said.
The finance industry, meanwhile, feels regulators may be exaggerating the scale of the problem and that their rush to fix things will create only more damaging complications.
One critic is Yelena Bakhmutova, a former head of the financial regulator and now chairwoman of the Council of the Association of Financiers of Kazakhstan, a lobby group. She told Eurasianet that the government bill is based on a logic derived from a high-altitude overview on aggregate lending volumes and the number of borrowers out there. It does not consider a more granular understanding of borrower incomes and the purpose for the credit is being taken out, she said.
“From the total portfolio of commercial banks, commercial loans account for only a little over one-third. Of that, more than half are interest-free installment plans for purchased goods,” she said. “If debtors pay off those loans correctly, they do not incur any additional expenses.”
The consumer segment is not where the risk to the lending sector is, Bakhmutova said. Citing official figures, Bakhmutova notes that the consumer segment is deemed a lower-risk category, since there are far fewer problem loans there than there are among small- and medium-sized businesses and in the real estate sector.
“Consumer loans do not pose a threat to financial stability for credit institutions, but from the point of view of social well-being, it is important to constantly analyze and adjust the balance of supply and demand for such loans,” Bakhmutova said.
First Credit Bureau, or FCB, a tech company running what is considered among Kazakhstan’s most up-to-date credit history databases, supports that view to state that the strong bulk of borrowers, taken in absolute terms, are conscientious in paying off their dues.
FCB cites International Monetary Fund data for 2022 to note that debt levels in Kazakhstan are satisfactory compared to peer nations. The share of personal debt-to-GDP is around 14 percent, which may be higher than Turkey (11 percent), but lower than Russia (21 percent) and Poland (27 percent). Consumer debtors in developed countries are vastly more exposed in proportionate and absolute terms.
Disgruntled shoppers will explain that taking out installments for buying common consumer goods is inevitable as prices are so high in Kazakhstan.
“Why do people often fail to repay their loans? Because their purchases are so expensive, and so there is no choice,” Vitaly Lebedev, the owner of a mobile phone accessories booth in an Almaty shopping mall, told Eurasianet. “Banks and traders collude and set prices that include both the profit margin and the hidden interest of the banks financing the installment plan.”
Lebedev cited his own recent experience of buying a popular British-made hair dryer which he ordered through eBay for $250. The same item sells for more than twice that in Kazakhstan, he said.
“Almost 300,000 tenge for a hairdryer!” he said indignantly. “If you have enough money, you order from somewhere else at reasonable prices. If not, you use extortionate installment plans.”
Critics of the government’s regulation-driven approach say more systemic economic solutions are needed. Galim Khusainov, chairman of Almaty-based Teniz Capital Investment Banking, wrote in a recent commentary on Facebook that the issue at the heart of all this is the public’s fading purchasing power. Fighting inflation and increasing household incomes are key here, he wrote.
“For now, we only have pro-inflationary policies, lack of regulation and limited competition,” Khusainov wrote. “[What is being done] will not help overcome the debt burden, but will only increase it, and that may have economic and social consequences in the future.”
Almaz Kumenov is an Almaty-based journalist.