Short-term loans — reason for getting into debt

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In the framework of the Project of the Ministry of Finance of Russia: the Rules of financial security when applying for a microloan

In the framework of the Project of the Ministry of Finance “Promoting financial literacy and developing financial education in the Russian Federation” this week presented the results of independent monitoring in the field of consumer protection, microfinance institutions and sociological consumer research “loans till payday”.

The study was conducted using the “secret procurements” microfinance services in 16 regions of Russia. Taking into account the obtained results, the Union of public associations “international Confederation of consumer societies” (Konfop) has submitted recommendations for solution of existing problems in the field of microcredit, drawing, in particular, on the international experience of regulation of this sector.

As shown by the results of studies in Moscow, the services of MFIs are not only those who borrows to live to paycheck, but also a more prosperous categories of citizens: 25% of consumers of services of MFIs borrow money for expensive purchases (phone, car, holiday pay, or weddings). The studies also found that most MFIs in Russia does not adhere to the principles of responsible lending and is ready to provide expensive “payday loans” even zakreditovannym and unemployed consumers. About half of the surveyed MFI does not indicate the annual interest rate on loans on their websites and only 2 of the 16 MFIs posted on the website a model contract. Approximately two thirds of the studied MFIs in the regions do not provide individual contract before signing. In addition, most of the staff of MFIs in the regions do not inform consumers about the consequences of delayed repayment of debt.

Recall that, by may 2018 in the state register of MFOs 64 2,106 microfinance and microcredit companies. The list excluded from the register includes 6,674 organization.

According to the Chairman of the Board Konfop Dmitry Ioannina, one of the main measures should be to reduce the cost of microloans through restriction of daily rates. He noted that, unfortunately, the statement of Bank of Russia about restriction of the full cost of credit (PSK) by establishing the maximum daily rate of interest at 1.5% (from 1 July 2019 — 1%) still has not found the form of legislative initiative.

According to General Director of the Analytical center NAFI, Guzelia Imaeva, short-term loans often become the reason of falling in debt: from 26% of borrowers size of loans exceeds their monthly income (11% half and 15% — 2 times and more), and 33% of borrowers — more than half of your monthly income. Regular payments on the microloans are often 20 to 30% of the income of borrowers, but in some cases this figure reaches 100%. Women benefit from microfinance services more often than men (65% vs 35%, respectively).

Commenting on the statistics given, the Project experts of the Ministry of Finance of Russia to improve the level of financial literacy and developing financial education in the first place is recommended to pay attention to make with MFI contract.

Deputy Director of the National center for financial literacy, Sergei Makarov, commented: “Many people ignore this rule and do not read the contract fully. To avoid disastrous consequences, you need to pay attention to the full cost of the loan, the number, size and frequency of loan payments, the types and amounts of additional agreements or loan payments and penalties, penalties and interest. If some of this data is not registered or you refuse to provide them, is an occasion to reflect on the integrity of microfinance organizations”.

As shown by the data of sociological research NAFI, financial literacy for borrowers of MFIs still leaves much to be desired. For example, more than half of microfinance consumers do not understand the terms of the loan agreement, do not know the annual percentage rates do not compare the terms of financial services to different companies. 70% of respondents do not store permanent records of income and expenses.

“Before you do, be sure to compare several offers at different MFIs. Let it will take more time and effort, but perhaps it will save you a significant amount. Then consider the term of the loan. Make a schedule of expected income, from which you plan to pay the debt. The worst option is to borrow to cover existing debts,” advised the head of the laboratory of financial literacy of economic faculty of Moscow state University Rostislav Kokorev.

According to Deputy Dean of the economic faculty of Moscow state University. M. V. Lomonosov for the development of Sergei Trukhachev, the services of MFIs can be used only in rare cases – for example, to cover “cash gap” when expenses are urgent and necessary and income is predictable. “It could be health problems with relatives, delay of salaries, failure of the car before an important trip or breakage of household appliances without which you can not do without. But, even making a loan in an emergency, still should rely of what funds and in what time frame you plan to repay it”.

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