Legal overviews
Recent changes in microfinance legislation: March 2016
- Author: Dmitry Churin
- Service: Corporate Law / Mergers and Acquisitions
- Date: 28.03.2016
Over the past few years there has been a significant increase in the number of microfinance organizations in Russia (MFO). Some organizations were aiming at generating high income on interest and penalties, other organizations (primarily retailers) regarded MFOs as an instrument to increase sales of their products.
For this reason a number of changes in the regulation of microfinance activity occurred recently, and the state consistently has introduced changes to increase the level of control over MFOs activity.
The latest changes in Russian microfinance legislation will come into force starting from March 29, 2016.
According to the amending law (Federal Law No. 407-FZ), microfinance organizations will now be subdivided into 2 types and there will be different regulation for these 2 types of organizations.
A brief comparison of both options you may find below:
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Microfinance company |
Microcredit company |
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Minimal amount of own funds – at least RUB 70 mln (approx. EUR 900K). Liquidity ratio, own capital adequacy ratio, maximum amount of risk for one customer or the group of customers, types and amounts of financial risks are to be established by the Central Bank of Russia |
Requirements are the same as for microfinance organizations (minimum share capital of RUB 10K). Liquidity ratio and own capital adequacy ratio are to be established by the Central Bank of Russia. |
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Is entitled to engage a credit organization (under the agreement) for customer identification or perform a simplified identification of customer. |
Not entitled to engage a credit organization for customer identification and must perform identification by using its own means. |
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Microfinance company shall not:
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Microcredit company shall not:
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Shall file with the Central Bank of Russia the annual auditor’s statement and annual accounting statements.
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Does not have obligations to file these documents with the Central Bank of Russia. |
New law prohibits to all types of microfinance organizations the following operations:
- Guaranteeing obligations of their shareholders;
- Transactions that may lead to decrease of balance value of company’s assets for more than 10% of balance value of assets without a prior approval of management authority (BoD, shareholder);
- Granting loans in a foreign currency;
- Unilateral change of interest rates in consumer credits or change of the procedure for their determination, commission, terms of validity of credit contracts;
- Imposing of penalties on a customer for early repayment of loans;
- Accrual of interest or other payments on the amount of a consumer’s loan, in case the total amount of such payment increases the amount of loan more than four times;
- Use of a name similar to the name of the company previously registered in the Register of Microfinance Organizations;
- Professional activity in the securities market;
- Granting loans to legal entities and individual entrepreneurs exceeding RUB 3 mln.
Furthermore, the Federal Law provides the following changes for microfinance organizations (both for microfinance companies and microcredit companies):
- the procedure of simplified identification is applied to the microloans that are RUB 15K or less;
- the term of registration of information in the State Register of Microfinance Organizations is extended from 14 to 30 business days;
- the order of registration of microfinance organization is specified.
All previously registered microfinance organizations automatically become a status of microcredit companies.
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Dmitry Churin
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Elena Lepneva
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Additional notes
Should any questions arise in connection with the above or if you need any additional materials, please contact Dmitry Churin or Elena Lepneva, St. Petersburg Office of Capital Legal Services.
This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.