Translation. Region: Russian Federation –
Source: Central Bank of Russia
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2026 will be the year of major transformation of microfinance organizations
In an interview with TASS, Ilya Kochetkov, Director of the Bank of Russia's Non-Bank Lending Department, discussed the innovations for microfinance organizations (MFOs) starting this year and the main risks in the microloan market.
– Ilya Aleksandrovich, what do you think will be the main trends in the microfinance market in 2026, based on this year's results?
2026 will be a year of significant transformation for the microfinance market. Several significant innovations will come into effect, aimed at limiting consumer indebtedness and eliminating unfair practices in the microfinance market. One of these is a limit on the number of high-cost loans in operation simultaneously. A transition period for implementing this regulation will begin in October of this year. During the initial phase, microfinance organizations will not be able to issue more than two loans to a borrower with a total consumer credit interest rate (TCA) exceeding 200% per annum. Beginning in April 2027, restrictions on "one loan per borrower" with a TCA exceeding 100% per annum will come into effect. Furthermore, a three-day cooling-off period will be established between such loans.
This should stop the practice of dragging citizens into a debt spiral using "loan chains," where each new loan snowballs into a debt pile. Furthermore, starting January 1, 2026, microfinance organizations (MFOs) will no longer be able to take into account borrowers' self-reported income when assessing their clients' debt burden. They will be required to either require official proof of income or assess it based on the average per capita income in the region. This will eliminate the practice of MFOs circumventing macroprudential limits by artificially increasing the borrower's debt burden ratio (DBR), inflating their income to several million rubles, even though the loan amount may be 10,000-20,000 rubles.
Compliance with the new rules will require companies to revise their approaches to assessing borrowers and eliminate practices that lead to excessive indebtedness. Starting March 1, 2026, microfinance companies will also be required to identify borrowers using the Unified Biometric System when signing contracts online, which could significantly impact the availability of services to individuals. We see that the market has already begun to prepare for the new regulatory environment. The lending market is gradually cooling. We expect this trend to continue this year.
– How much has the largest microfinance institutions' share of total loans issued increased in 2025? Will this concentration lead to competitive risks and higher borrowing costs for end borrowers?
The top 10 microfinance organizations currently account for approximately 70% of the total volume of loans issued. Compared to 2024, we are indeed seeing increasing market concentration. Large players are gaining strength, while smaller companies are finding it increasingly difficult to adapt to market conditions and new regulatory requirements. In this situation, we are seeing increased competition among large players for high-quality clients. Large microfinance organizations, with significant capital reserves, offer clients more favorable terms. This is contributing to lower rates in the market overall.
Until recently, interest rate differentiation was virtually nonexistent in the microfinance market. There was no correlation between the APR and the risk of loan default. Companies, while able to issue loans at the highest possible interest rates, did not offer reduced rates to high-quality borrowers.
We have systematically introduced regulations to encourage microfinance organizations to differentiate interest rates. Starting in October 2024, disincentive loss reserves and increased risk coefficients were introduced for loans with an APR of 250%. This puts pressure on microfinance organizations' capital and makes issuing expensive loans unprofitable. All these factors combined have already led to some differentiation in rates. Starting in April 2026, these measures will apply to loans with an APR of 150%. These regulatory changes will facilitate the formation of a continuous pricing range, allowing reliable borrowers to obtain loans on more favorable terms.
– What do you think should be improved in the legislative framework for the operation of microfinance organizations?
The microfinance market today consists of three main areas: consumer loans for individuals, POS lending and loans for large purchases, and business loans. Innovations are expected in each of these areas. This year, we plan to define three categories of companies in the market: entrepreneurial finance companies, retail finance companies, and microfinance organizations. Depending on the type of these organizations, they will have differentiated limits on certain transactions and prudential standards.
This differentiation is based on the significantly different risk profiles of the three proposed segments. This includes varying levels of delinquency across loan portfolios, and the different contributions of each segment to household debt. Market segmentation is aimed at stimulating the activities of companies providing loans to individuals and businesses at moderate interest rates, as well as eliminating negative practices in the consumer microloan market. A corresponding bill is currently being drafted.
– In 2025, the Central Bank repeatedly noted the rise in overdue debt in the microloan segment. What measures, other than limiting the debt burden, is the regulator currently considering to curb this trend?
To reduce delinquency, it's necessary to improve the quality of risk assessment at the application approval stage in microfinance organizations. Despite their obligation to calculate the debt burden ratio and adhere to macroprudential limits, microfinance organizations (MFOs) use various methods to circumvent these requirements. For example, as I've already mentioned, they inflate the borrower's income to artificially increase the DTI. We, in turn, are amending the regulation in this area. Starting in July 2025, MFOs will no longer use imputed income assessments based on borrower expenses on loans and borrowings. Starting in the new year, the declarative income assessment procedure will be abolished. The only alternative to officially verified income will be the per capita income in the borrower's region of residence.
Starting in July 2027, only official income will be allowed to be used to calculate the DTI. This will improve the quality of debt assessments and, consequently, reduce the level of risk and delinquency. The introduction of limits on the number of concurrent loans will also be significant. Uncontrolled debt growth will be curbed. We also anticipate that, at the outset of these restrictions, there may even be an increase in delinquency across the market overall. Loan chains allow companies to camouflage borrower defaults—more than half of the loans within them were never formally delinquent. However, when the refinancing of such loans is prohibited, they will move out of the gray zone, which could lead to an increase in delinquency on MFI balance sheets.
– You previously mentioned schemes using "technical" microfinance organizations to circumvent restrictions. Were you able to significantly reduce the number of such schemes by 2025, and what was the main challenge in combating them?
"Indeed, there are practices where MFIs create multiple companies at once to protect themselves from exclusion from the register or to use them to circumvent existing regulations. That's why, to effectively eliminate practices that draw borrowers into a debt spiral and eliminate loan chains, we are expanding the "one loan per client" rule to the entire market, not limiting it to refinancing practices within each individual MFI."
– What do you think about the periodic calls in the State Duma to ban microfinance organizations?
Banning microfinance institutions (MFIs) isn't the answer. Currently, approximately 15 million citizens are MFI borrowers. We can't deny that MFI services are in demand; they allow people to obtain loans quickly and easily, often directly at points of sale. And we mustn't forget that MFIs aren't just short-term "payday loans." They also offer POS lending and loans for large purchases, which I've already mentioned. This segment is developing very rapidly. Finally, it's about lending to small businesses. It's not MFIs that need to be banned, but rather the unscrupulous practices in this market. This is precisely what the measures I've mentioned will address.
The Bank of Russia has announced a pilot project to create specialized mortgage microfinance organizations to finance projects in the "mortgage scissors." Which regions are planning to launch this pilot project first, and why?
Mortgage microcredit companies (MCCs) began operating on October 22, 2025. Their primary goal is to increase housing affordability in the regions. The Bank of Russia oversees and maintains a register of such companies. Currently, there are four organizations. The register is published on our official website. Importantly, the Bank of Russia does not determine the geographic scope of mortgage MCCs—each region of the Russian Federation decides for itself whether to establish one in its region.
– What specific restrictions on borrowers, properties, and rates will be established for such mortgage microfinance organizations to avoid a recurrence of the risks typical of the microloan market?
A basic set of regulatory requirements has been established for mortgage MCCs from the very beginning. A mortgage MCC must be 100% owned by a constituent entity of the Russian Federation. Furthermore, only one mortgage MCC can exist in a single region. A moratorium on applying the APR limit on mortgage loans is in effect for such MCCs until March 31, 2026, to allow new companies to adapt to market conditions.
We believe that final regulation should be finalized after the accumulation of law enforcement practice. However, if significant deficiencies in their operations or systematic violations of the law are identified, we may establish additional requirements in accordance with the law and promptly adjust their operations.
How do you assess the current state of microfinance institutions (MFIs) in the market, and what are the Central Bank's plans for their development in 2026?
Our regulatory changes to the microfinance market are aimed at ensuring that companies operate openly and honestly and avoid practices that circumvent the law, mislead citizens, and lead to increased indebtedness. We expect the market to respond to these changes by transforming its business processes, rethinking approaches to assessing borrower quality, and adjusting scoring models, rather than seeking ways to circumvent the new regulations. This is important for fostering a positive image of the market and for its future.
Alisa Stepanova, TASS
Please note: This information is raw content obtained directly from the source. It represents an accurate account of the source's assertions and does not necessarily reflect the position of MIL-OSI or its clients.
