MFIs are not interested in getting the status of the Bank.
If the micro finance company gets the bank licence it will not be able to accept money from individuals to the bank deposits. Market participants believe that in this situation there will be few MFCs that shall wish to become a bank.
Russian President Vladimir Putin signed Federal Law No. 92-FZ “On Amending Certain Legislative Acts of the Russian Federation” on May 1, 2017. This Law is introducing new types of banking licenses –universal and basic, and it also envisages the possibility of obtaining a basic banking license for the MFCs. Apart from that the Law also stipulates the provision of transformation of banks into MFCs. The Law shall enter into force on June 1, 2017.
Banks that would like to become an MFC are obliged to register in the Bank of Russia Register of MFIs. Banks may get the status of MFC only after fulfilling prompt pay-out to depositors and de-register in the Deposit Insurance System.
Whereas, an MFC that would like to change its status and get a basic license to conduct banking operations, shall be obliged to meet all the requirements of the Central Bank applicable to such banks. Including the requirement to the size of capital asset fund – no less than 300 million Roubles. Now the equity asset fund for MFCs’ threshold – no less than 70 million Roubles (companies with capital assets below this level shall be deemed to be microcredit companies and do not have the right to attract time deposits money from individuals). According to the MFIs’ Registry as of April 28, it includes 24 MFCs and 2384 MCCs. In addition to that MFC, receiving a basic banking license, will not be able to attract funds from individuals into bank deposits for two years.
According to comments provided to Web portal Bankir. Ru by the Central Bank, the change of status became possible because «the business model of MFC, as well as of banks with a basic license, is aimed at attracting financial resources from individuals and legal entities and forwarding these funds into loans to individuals and business community (primarily medium and small size business), and MFCs’ regulation is similar to the regulation of such banks with basic license, the only difference is slightly smaller number of regulatory requirements and, accordingly, appropriate authority.»
Having said so the Central Bank considers that only large MFCs may be transformed into banks with a basic license since they either already have substantial capital fund or have an opportunity to raise such fund.
«The rationale of the movement into “another league” has only those MFCs that are prepared and want to provide banking services to customers: opening accounts, issuing larger loans than MFCs, providing guarantees, exchanging currencies, operating bank cards and executing money transfers, attracting community funds smaller in size than MFCs, » – comments the Bank of Russia.
Therefore if a bank with a basic license shall not be able to meet the requirements set out for it, then it can obtain the status of a MFC. This «will allow to continue to conduct financial activities in accordance with the restrictions set for MFCs, a better alternative to leaving the market and loosing a banking license. Also, such a transformation may be of interesting to banks with a business model that does not envisage providing such wide range of operations that a basic banking license supposed to be carried, more to that it requires much higher expenses to maintain the licence in comparison to the procedure of obtaining and maintaining of MFC status,” – the Central Bank says.
Nevertheless, MFI market participants indicate that obtaining a banking license or MFC status for both banks and MFCs will be attended with great difficulties. «For banks, the most difficult will be to fulfil al commitments towards depositors,» said Sergei Sedov, Director General of Robot Zaymer online loan service. “Many deposits are of a long-term nature. In order to close the early, unilaterally, or transfer obligations under depots to another bank, will require the necessity to contact each depositor to resolve the issue separately with every one of them. This might require lots of time and money. »
«The biggest issue is depositors – a person who puts money on a deposit may go on a long business trip or for permanent residence abroad, go to prison or, after all, can simply die and before the registration of the rights to inheritance and that takes six months, nobody can make settlement of such deposit » – says Sergei Sedov.
Furthermore, those MFCs, which decide to become banks, also face many obstacles – ranging from fulfilling the requirements for the security of offices (which are strictly regulated for banks and require special very expensive preparation of offices) to the level employees’ qualifications, Sergei Sedov noted.
Besides, according to Sergei, connection to SWIFT and other interbank communication channels might will be a serious problem; transfer to the software that meets the requirements of the Central Bank for banks; communication with the Ministry of Railways and partnership with other banks for accepting cards at ATMs and so on.
Equity Fund’s threshold for banks with a basic license also looks like a problem of no less magnitude. «On order to obtain the status of a MFC, the size of equity capital should be noless than 70 million Roubles, and for the majority of market players this requirement is not feasible. And the increase of it to the amount of equity capital 300 million Roubles to obtain a basic banking license is highly unlikely many can afford, only single market leaders,» – says Anastasia Loktionova – Director of the legal department in Rusmicrofinans Group of Companies.
Besides, MFIs today does not have the incentive to transform into banks, market participants say. «It’s necessary of have such a combination of macroeconomic elements like – domination position of one of the MFIs in this segment of the market, the growth of income of regular MFIs’ customers in this segment, materialization of demand for banking products and economic stabilization in general,» Sergei Sedov said. «In fact, for MFIs, it’s only a matter of supporting a familiar brand, but now such kind of brands, actually just being developed.»
The Central Bank considers untimely to forecast the number of MFCs that can receive a basic banking license and the banks with a basic license interested in obtaining MFC status.
More information you can find at http://bankir.ru/