In early October, the Bank of Russia announced that new players—mortgage microcredit companies—would enter the financial market. Yaroslav Badzhurak, Executive Director of the financial marketplace Vyberu.ru, told Izvestia on October 21 how these organizations would operate and why the high mortgage interest rates typical of microfinance organizations (MFIs) would be eliminated.

«Mortgage microcredit companies will begin operating as early as the end of this month—the law regarding them will come into force on October 22. One of the main differences between mortgage microcredit companies and banks is that these organizations will only serve borrowers under state programs and exclusively within a single region,» he explained.

There will be no more than one company per region. This answers the question of why these types of financial organizations are being created in the first place. They are expected to operate in regions where banks are weakly represented. Banking players in the mortgage market are reluctant to enter sparsely populated cities. Housing costs are lower there, and borrowers’ debt burdens (due to their low incomes) are higher, making it more difficult to profit from mortgages.
At the beginning of last year, regional mortgage lending under state programs was handled by special funds included in the Dom.RF bank registry. However, by May of that year, all of them were removed from the registry. This was because they were not regulated by the Central Bank. According to Anatoly Aksakov, head of the Central Bank’s Committee on Financial Markets, these organizations were subject to abuse and fraud. Mortgage microfinance organizations, on the other hand, will be regulated by the Central Bank, meaning the risk of unfair practices is lower.

Not everyone will be able to obtain a mortgage through a microfinance company. Mortgage MCCs will only issue loans under state support programs. Issuing mortgages at market rates will not be their responsibility. Moreover, borrowers will see no difference between a loan from a microfinance company and a loan from a bank. There will be no daily interest accrual, typical of microfinance organizations. The rate will be calculated annually, with payments due monthly.

«The question remains: how will microfinance companies make money, since this business model is not typical for them? Mortgage microfinance organizations will likely have no need to make a profit. Such companies will be 100% owned by the federal subject in which they operate. The only microfinance company traits they will have are their name and legal form. Regular microfinance companies will not enter the mortgage lending market,» concluded Bajurak.
Source: www.iz.ru