Micro-credits carry three primary risks: steep costs, short repayment horizons, and the ease with which they can be obtained. Financial analyst Vladimir Grigoriev, a Candidate of Economic Sciences, offered this assessment while discussing the current microloan landscape. He emphasized that the most popular form of microcredit is the advance loan, typically priced at about 1 to 1.5 percent per day, with borrowers expected to repay within two to three weeks after receiving the funds. The economist pointed out a troubling pattern: many borrowers fall behind on payments, and as delays accumulate, the prospect of fully repaying the loan becomes markedly more challenging. The longer the delay continues, the deeper the borrower tends to sink into financial trouble, sometimes spinning into a cycle that feels almost inescapable. Grigoriev noted that this dynamic often starts with a modest cash need but can escalate into a persistent burden, a scenario frequently echoed in financial literature and consumer credit experiences alike.
According to the expert, microfinance institutions, or MFIs, sometimes promote interest-free loans for a very short period as a marketing tactic. He described this approach as a marketing gimmick that masks potential repayment difficulties, arguing that even zero-interest windows can conceal harsh terms once the promotional period ends. The concern is that the absence of interest may lure borrowers into accepting terms that become uncomfortable or unsustainable when the initial period expires. Grigoriev pointed out that a large share of MFI clients comprises individuals who are unable to secure loans from traditional banks, often due to existing financial strains. For these borrowers, meeting debt obligations can prove more arduous, as they may lack stable income or sufficient savings to cover unexpected shortfalls. This fragile financial footing increases the risk of default and heightens the overall strain on households already navigating tight budgets.
Since January 1, 2023, the Central Bank of the Russian Federation tightened the regulatory framework governing microfinance activities. Macroprudential limits were introduced to curb the pace and scope of lending by market participants. For microfinance organizations (MFOs), a key rule specifies that the share of loans with payment-to-income indicators, where a large portion of income is earmarked for debt service, should not exceed 35 percent for each loan type. Projections for the third quarter of 2023 anticipated a reduction to 30 percent. These measures aim to dampen excessive risk-taking and protect borrowers from overextension, ensuring that credit remains available under more prudent terms. Grigoriev highlighted that such caps reflect a broader effort to balance access to quick financing with the need to preserve consumer stability. In the current climate, borrowers should carefully assess their repayment capacity, recognize when a loan could become unaffordable, and consider alternatives that offer greater clarity and longer-term financial resilience.