Regulator reports low level of defaults by businesses taking microloans

What is the share of nonperforming business microloans in Kazakhstan / Collage by Kursiv.media, photo editor Arthur Aleskerov

According to the Agency for Regulation and Development of the Financial Market of Kazakhstan (ARDFM), the share of non-performing loans (NPLs, loans with a past due of 90+ days) issued to businesses by micro-financial organizations (MFOs) and credit societies (CSs) is very low.

«Even though businesses that rely on loans from MFOs and CSs are primarily considered risky, the share of non-performing loans issued to these businesses in the credit portfolios of MFOs and CSs is still very low,» the agency said in a statement.

National Bank statistics show that the share of non-performing business loans in MFO portfolios is at 4.2% ($2.9 million out of $69.3 million). The same rate for individual entrepreneurs, who are accounted for separately, is 3.6% ($11.5 million out of $320.6 million).

In the aggregated loan portfolio of CSs (the ARDFM counts them separately as well) the share of NPLs to entities was at 0.3% as of the beginning of the second quarter of the year. Loans to individual entrepreneurs are included in the statistics for private customers, with the share of NPLs at 4.2%.

As the ARDFM noted, micro-business loans account for 64% of the overall $3.1 billion loan portfolio of MFOs and CSs. This rate has risen by 27 percentage points since 2021. At the same time, microloans to small and medium-sized businesses and the self-employed account for 63.1% ($1.9 billion) of such loans.

Microloans to regular customers

In April 2024, the share of NPLs for private customers (excluding individual entrepreneurs) in the loan portfolio of MFOs was at 7.1% ($161.6 million out of $2.3 billion). The overall share of NPLs 90+ was 6.6% ($176.2 million out of $2.7 billion) for MFOs and 1.3% for CSs.

In late May, Deputy Chair of the ARDFM Olzhas Kizatov revealed that the share of NPLs 90+ was at 12% or $3.3 billion in nominal terms. He didn’t clarify which type of creditor he was referring to. The Association of Financiers of Kazakhstan suggested at the time that Kizatov was talking about MFOs and banks.

Recently, the ARDFM proposed several initiatives aimed at strengthening regulatory requirements for MFOs to decrease the number of non-performing loans. The key proposal is to reduce the effective annual rate (EAR), which includes the interest rate plus all fees and commissions a borrower must pay. Currently, there are two types of EARs for 45-day microloans under 50 MCI (Monthly Calculation Index): 20% for loans under 30 MCI and 15% for loans ranging from 30 to 50 MCI. To limit the upper bar for interest payments, Kazakhstan’s legislation has set a 50% ceiling for such loans.

On the other hand, Chair of the agency Madina Abylkassymova mentioned many times that she would eliminate 45-day microloans under 50 MCI as a category and would set unified rules for all microloans. In mid-July, the ARDFM and the National Bank developed and offered for public consideration a joint draft proposal aiming to decrease the EAR for microloans (without mentioning 45-day loans under 50 MCI) from the current 56% to 46%.

Earlier this year, authorities adopted a law banning banks and MFOs from issuing new loans to those who have NPLs. Furthermore, the document prohibits charging interest on NPLs 90+ to protect regular borrowers from falling deeper into debt. Creditors also can’t sell their debts to collectors due to a moratorium until May 2026.