Implementation of the Leadership Strategy reduction of debt burden
On June 26, 2019 the President of the Republic of Kazakhstan, KasymZhomart Tokayev, signed the Decree # 34 On reduction of the debt burden on the citizens of the Republic of Kazakhstan. This decision was made to provide unprecedented unprecedented social assistance. The continuation of the implementation of the President’s Strategy.
The main goal is to help people who are in difficult situations, to allow them to significantly improve their families’ financial situation. There are several conditions for using it.
The first one. Citizens of a socially vulnerable group (large families, families with disabled children, singleparent families, receiving social assistance, orphans).
The second one. They are in a difficult situation and can not fulfill their credit obligations.
Third. Total debt does not exceed 3 million tenge (up to June 1 this year).
Fourth. Assistance to one borrower does not exceed 300 thousand tenge. Repayment of principal and interest accrued from this amount.
The Fifth. The debt should be based on noncollateral consumer loans.
According to economists, this social support campaign will reach 500,000 citizens. Their debts for 255 thousand people are completely erased (55%). And the debt burden on the remaining 245,000 citizens and their families will be significantly reduced (45%). This will greatly help rebuild their solvency and reduce debt burden.
In total, the amount of funds allocated is $ 150 billion. Tenge. However, banks and microfinance institutions also deduct from accrued fines and penalties on such loans.
This is a onetime share. The situation with respect to consumer loans should not be repeated. This is the position of the President. In order to avoid this debt, the Head of State instructed the National Bank to lend to the National Bank lending to lowincome people and to calculate penalties, commissions and other payments on consumer loans over 90 days in arrears.
On the instructions of the Head of State, in order to prevent such a situation, the National Bank should take strict measures of regulation and strengthen the responsibility of financial institutions for excessive risk.
The draft law On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on the Issues of Regulation and Development of the Financial Market and Introduction of Amendments and Additions to Microfinance Activities were addressed to solve this problem.
Its main goals are to create an independent regulator for the financial sector and to eliminate regulatory problems and regulative arbitration in the consumer lending market.
The bill has been supported by parliamentarians. Shall be effective upon signing by the President.
Currently, the banks’ lending portfolio of consumer loans amounts to 4 trillion. tenge. In addition to banks, microfinance institutions, there are nonregulated entities in the lending market online lending companies, credit unions, lombards and other organizations.
The loan portfolio of nonbanking organizations grew at a rapid pace and reached 430 billion tenge. The total number of borrowers with consumer loans exceeds 5 million people, each with an average of over 914 thousand tenge indebtedness. More than 86% of loans are worth 1 mln. tenge. The average size of debt about 300 thousand tenge.
The possibility of any legal entity lending to the population is provided by the Civil Code. However, the absence of unified approaches to debt relief activities led to regulatory arbitration.
Banks and microfinance organizations are obliged to observe the established prudential requirements (capital adequacy, amount of risk to one borrower, liquidity) and protection of consumer rights. Thus, they are incompetent with unregulated creditors.
Using low level of financial literacy of the population, unregulated creditors provide loans to citizens at high rates, with different commissions and penalties. This will increase the risk of overlending and failure to meet loan commitments.
As a result, the debt burden on many citizens is rising, and the net income drops. People can not find ways to repay their loans. There is no complete and consistent information on citizens’ debt burden. Not recommended for credit bureaus. Its absence is an additional factor contributing to a lack of credit risk.
In the absence of control and surveillance, the ability to carry out transactions with money and other property increases the risks of legalization of proceeds of crime.
In order to address these problems, the authority of the state body for the regulation and supervision of financial market and financial organizations will be expanded, including all lending entities.
Nonbank credit organizations are merged into a common regulatory framework on microfinance organizations based on current legislation.
Now, nonregulated creditors are required to register with the National Bank and be monitored.
What are the amendments to the legislation?
First, introduce a prohibition on lending to businesses and individuals as entrepreneurial activity. Of course, this does not apply to the provision of money in the form of bank loans and microcredits. In addition, it does not include the transfer of a legal entity to another legal entity, a loan from a natural person or a legal entity.
Thus, it ensures adequate protection of the rights and legitimate interests of consumers.
Secondly, microfinance organization microfinance organization, microcredit organization, credit partnership, Lombard.
Third, the differentiated nonbank credit organization regulation system ,depending on the specific type of activity, is based on the principle the higher the risk is the higher the regulatory requirements.
Other requirements for each type of microfinance activity shall be established at the level of normative legal acts of the authorized body. Among them the general coefficient of debt loading of the borrower, additional requirements to the bank’s own capital and others.
Fourthly, taking into account the practice of lending to wages, the maximum allowable amount of overpayment for such microcredits is provided.
Fifthly , the authorized body is empowered to regulate and supervise microfinance organizations. Authorities shall include prudential standards and mandatory standards and limits for observance, control over observance of the procedure for determining the procedure and threshold values of the borrower’s debt burden coefficient.
The Head of State expressed confidence that the above measures will have a significant impact on solving social issues and achieving the goals set out in the Strategy of the Head of State.
Source: Kazakhtan 2050