From Russia with Loans, or 5 reasons to invest now

Grupeer is thrilled to announce that the Matryoshka campaign is now live and lasts between the 15th of January to 31st of January 2020.

This special campaign is covering promising micro-financial companies that are issuing short-term consumer loans in Russia- Cash-U, DoZarplati*, PlanetaCash, EpicCash, Lion Lender, and Monetria.

The conditions:

Invest in 3 companies at least 3000 EUR and get 0.5% Cashback

Invest in 4 companies at least 4000 EUR and get 0.75% Cashback

Invest in 5 companies at least 5000 EUR and get 1% Cashback

The total investment amount will include all cumulative investments made until midnight (EET) of the 31st of January. You can invest several times during this period and choose any combination from the six companies participating in the campaign.

The Cashback will be added to clients’ accounts by 10th of February 2020. Please note, that this promotion is not combinable with any other offers.

Press here to invest.

If you are wondering what are the reasons to invest in consumer loans from Russia, besides the attractive Cashback, we have prepared for you an overview of the most important reasons to invest. This overview is very important for any P2P investor and can be used for making a decision even when the campaign is over.

*Please note, that only loans of DoZarplati with indirect structure DoZarplati/Finsputnik participate in this promotion. This is due to the fact that the loans with the indirect structure are issued to a Loan originator, who later uses this Cashflow to issue consumer loans. The loans with the direct structure are used to finance loans to small and medium businesses.

5 Reasons to invest in Russian Loans

1. Economic fundamentals

Russian Economy is growing and it is going to accelerate in the upcoming years. According to the World Bank, the advanced economies are projected to grow by 1.4% in 2020. In Russia, the growth adjusted for inflation is projected to reach 1.6%. The Russian government wants to boost economic growth even further, by creating favorable conditions for new investments.

When the GDP increases, all segments of the economy feel the effect. The more products are getting produced, the more people get jobs, and eventually more consumption. For Micro financial companies this is the positive scenario, as the more people buy, the more loans will be issued. This is especially relevant for the lenders that are listed on Grupeer, as they are targeting customers that are employed and have a stable income.

Another reason why the Russian economy is stronger than some might think is due to the phenomenon called the “Russian Paradox” by some economists.  Why Paradox? Well, despite Russia being an Emerging economy, it has one of the strongest governments fiscally. It has a budget surplus and large reserves. No other emerging economy has ever managed to cover its public debt fully with public savings.

Another positive macroeconomic development during last year was the Rubble appreciation. At the beginning of last year, 1 Euro cost 77 Rubbles, while in January 2020 the euro price declined to 68 Rubbles. The 11% decline in the Euro price, in Russian Rubble terms, is significant especially for private consumers, who are buying European goods. Overall their expenditure power will increase and will boost the economy even further.

2. Strengthening of the non-bank lending sector in Russia

Some may be worried about the current state of the micro financial regulation in Russia, but actually, the Central Bank is strengthening its regulation with regards to non-bank lending companies.

Moreover, there was a speculation on the Russian market, that micro-financial companies might be prohibited in Russia. But the calming news came in May 2019, when the Central Bank governor Elvira Nabiullina has taken a stage in State Duma (Russian Parliament) and proclaimed that Central Bank of Russia is against the prohibition of micro-financial companies.  As history showed, any kind of restriction is boosting the black economy.

The governor’s reasoning totally made sense- the Russian population is not abusing the short-term loans, for indulgence, but filling the necessary gaps in their consumption and covering the emergency expenses. The prohibition of short-term loans would not remove the emergency situations and Russian borrowers might take the loan from the illegal financial dealers. To sum up, the restrictions of the legal lenders would boost the black market of short-term loans.

Russian Central Bank is already making big efforts, giving licenses only to approved lenders and removing the illegal market participants (in 2019 the black market for loans has increased by 15%) and companies with poor lending practices.

The Russian Central Bank is actively involved in the regulation review. Last year, the Bank has prohibited micro-financial companies to lend money and to use the property as collateral. This is due to the fact, that some people who got into hard life situations and are struggling are in danger of losing their homes.

Moreover, on the 1st of January 2020 the final changes to “Law of the Micro financial Organizations” have come to force.

3. Law on the Micro financial Organizations in Russia

The previous version of the Federal Law 353, regulating the activities of the micro-financial organizations, has been unchanged since 2013. In 2019 there were suggested considerable edits, so the authorities decided to implement them in three stages. The first stage was realized in January 2019, then in July 2019 and the final third stage was enforced in January 2020. Below is the summary of all changes:

28th January 2019

All short-term loans which are granted for a period shorter than 15 days for a sum below 10,000 RUB are making up a separate category. Now, they can’t be pro-longed and the maximal over-payment amount can’t be higher than 30% from the original sum borrowed.

The maximum daily interest rate for all types of short-term loans can’t exceed 1.5% a day. Before the rates could reach 750%APR or more than 2% daily.

From now on only companies that are positioning themselves as non-bank consumer lending companies and having all necessary licenses can work in this financial field. Moreover, the special license is required if the company wishes to sell its bad debt and defaulted loans to a third parties debt collecting agencies. This change aims to protect customers even greater.

1st of July 2019

Since July the maximum daily interest rate decreased even further- from 1.5% a day to 1% a day. Additionally, the maximum sum of overpayment decreasing from 250% to 200%. So, for example, if the customer borrowed 50k RUB for a year, by the end of the period the final overall sum owed can’t be higher than 150k RUB.

1st of January 2020

The final amendments are aimed at the same overpayment amount, which now decreased from 200% to 150%. So, if taking the same example, the final sum owned for a 50k RUB loan in a year’s time can’t be greater than 125k RUB.

Last year has shaken up the micro-financial lending industry a lot and finally, the changes are over. Many players have been forced to leave the market and only the most adaptive has stayed. The most competitively advanced players with online acquisition channels and automated scoring models could fit the new interest-rate climate. So, the players who stayed proved themselves as reliable partners. Exactly such companies are listed on the Grupeer platform and the recent changes in Russia only prove their strong business models.

4. Consumer spending rising

The bread and butter of micro-financial organizations are consumers and their spending habits. Sure, the Central Bank’s governor Elvira Nabiullina pointed correctly that “people are not borrowing for short-term due to “sweet life””, but out of necessity”, but if you consider the younger population you might have a totally different picture.

Previously, during the economic downturn and transition of the Russian economy to capitalism, the population close to poverty was much larger, than today. Back then micro-financial organizations have abused the population’s difficult situation by offering very expensive loans. These loans were life-saving at the moment, but later pushing people into a debt trap, (when debt is so large, it keeps becoming even larger).

Currently, the Russian population is getting more economically well-off and there is an emerging consumer demand from young educated Russian customers. Moreover, the technologies have been adopted by the biggest part of the population, even outside big cities such as Moscow or St. Petersburg. This paradigm shift has allowed micro-financial organizations to adapt their business models to modern consumers.

Now, there is no need to maintain revenue streams lending to consumers in bad situations. There is a possibility to lend to employed professionals with a stable income, who want to boost their consumption. Moreover, the rise of the technology allowed micro-financial companies to build advanced scoring models and fully-online applications, which are accessible to potential customers with a more favorable economic situation.

Furthermore, the market for micro short-terms loans is underexploited in Russia. There are tremendous opportunities as there is still a large population with a lack of access to financial services. In terms of the size- there is room for growth, as Russia is far behind in terms of portfolio size when compared to other emerging economies.

BNP Paribas in their Microfinance Report has estimated that the portfolio size of micro-financial companies in Eastern Europe and Central Asia is $5.9 Bn. The figure is very low when comparing to South Asia ($36.8 Bn), or East Asia and Pacific ($21.5 Bn). These data indicate that there is a tremendous room for growth for the MFOs that are operating in the region, and better for investors in loans in these countries.

The statistics show that in Russia the consumer demand is fuelled by the lending sector. The consumption is rising and beats expectations each month, so investing in short-term consumer loans is an opportunity not to be missed.

5. Essential Asset in a Portfolio

Even if you are an investor in more traditional assets, you still probably thought already that Russia is a good position in your portfolio. Including Russian assets to a portfolio will work for both- for an emerging market investor as well as a good diversification option for the investor in the developed market assets.

But how to do it? Investing in stock can be tricky, as in 2019 the Russian Stock Market has brought the highest return to investors than anywhere in the world! In September 2019 The MSCI Russia index has increased 44%! Russia was considered the TOP stock market last year. The past performance is not an indicator for future returns- is an investment mantra many financial advisors keep repeating and we agree with them!

It is a rookie mistake to invest in an asset, when it just performed very well, especially in a stock market. If this was a bull run, the correction might follow quickly. If not a correction, but volatility will be present for sure. Especially in the stock market, which is strongly dependent on macroeconomic variables and geopolitical events. Long story short, 2020 doubtfully will be the same in the Russian stock market in terms of returns.

So, if you are considering including Russian assets in your portfolio you should look for something with more stable return and low volatility. The consumer loans issued in Russia is a great opportunity in this sense.

Concluding remarks

We hope that you enjoyed reading about economic fundamentals which make Russia a top destination not only for P2P investors but also for more traditional market participants. Of course, there are many more reasons, which are playing a positive role in facilitating the development of the favorable investment climate in Russia. Other important things to consider are the “Ease of Doing Business” rank (28 out 190), which is improving year on year, developing the economy and trying to get away from oil-dependency, and many more.

We hope that you will benefit from adding these loans to your P2P portfolio and benefit from the Matryoshka campaign. Press here to invest.

–In America, you can always find a party. In Russia the party always finds you. Yakov Smirnoff–

 

 

 

 

 

 

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