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Kyrgyzstan: Loan Repayment Holidays Are Not Enough to Support Business

The National Bank of Kyrgyzstan recommended commercial banks and microfinance companies to introduce three-month repayment holidays without fines for Kyrgyz citizens with loans. However, loan recipients and experts consider such measures insufficient to support citizens.

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According to the data on the microcredit volumes of the National Statistical Committee, in 2019, more than 600 thousand Kyrgyz citizens got loans for 30 million soms ($355.69 thousand) in total.

Most of these loans were taken for agricultural and consumer needs.

On March 25, 2020, emergency was introduced in Kyrgyzstan due to the spread of coronavirus infection. People are not allowed to move freely, some people work remotely, many got unpaid leaves.

According to the Ministry of Labour, 1.8 million Kyrgyz may lose their jobs due to coronavirus. The Deputy Minister of Labour Aliza Soltonbekova announced these data at a press conference on April 1.

Ermek Mandeeva. Personal photo

A year ago, Ermek Mandeeva, resident of the Tynchtyk housing district in Bishkek, opened a childcare center at home. To modify her private house, the woman took three loans. The repayment period of one of them expires in August this year.

“We have to pay about 30 thousand soms ($354) per month for all loans. When our center worked, we paid easily. However, after quarantine was implemented, the work stopped. We can no longer pay salaries to employees,” says Mandeeva.

Her husband worked as a cellphone repairman at a shopping center, but after quarantine introduction, there is nothing to work on now, and he cannot receive his salary. Now the family does not have enough money even to buy groceries, not to mention loans.

On March 18, the National Bank introduced temporary requirements for commercial banks and non-banking financial credit organizations:

– It is prohibited to charge and levy the commission and other payments related to the review of the terms of the loan agreements;

– It is prohibited to impose and levy penalties, including forfeit (fines/penalty fees) on borrowers for non-execution / improper execution of the obligations provided by loan agreements;

– It is recommended to grant delay on loan payments, at least, for three months;

– It is permitted not to lower the classification category of loans when changing the terms of loan agreements, including reorganization and monitoring of loan recipients whose business activity was affected by restrictions introduced to prevent the spread of coronavirus infection.

Commercial banks comply with the requirements of the regulator regarding the fines; however, each bank decides the issue of the three-month repayment holidays at its own discretion.

Some banks accommodate requests; others agree to grant delay only for shorter periods. However, even in the case of repayment holidays, the loan recipients will still have to pay the interest rate for this period.

When the owner of the childcare center Ermek Mandeeva called the bank asking for a delay, she was invited to visit the bank and file an application. However, due to quarantine and the lack of public transport, she could not get to the bank’s offices.

Some banks introduced the online application system via messengers, but others accept documents only at the offices, and then the commission analyses the applications.

Ainara Kakieva. Personal photo

Bishkek resident Ainara Kakieva has a first-degree disability. She suffered a heart attack due to diabetes, after which she almost lost her sight.

Last summer, she decided to get a loan from a microcredit organization for eyesight recovering surgery. She hoped to repay it from her spouse’s salary.

“My husband lost his job and did not receive a salary for the last month. I get free haemodialysis from the state, but the public transport does not work now and it is hard for us to pay even for the transportation to go to the procedures,” says Kakieva.

It is hard for us to pay even for the transportation to go to the haemodialysis procedures.

The microcredit organization replied to her that they could grant a delay in loan repayment for only a month.

“In the best possible case, quarantine will end within a month and my husband will start working. However, he still will need to work another month to be paid. Now we are thinking all the time about what will happen next month,” Kakieva says.

I call a microcredit organization, but their phones are turned off.

Another Bishkek resident Mukaddam Saydalieva cannot even reach a microcredit organization. She works as a tailor, but there are no clients after the emergency announcement. She has a 50 thousand soms ($589) loan, which she took to repay another loan.

Mukaddam is a single mother; she has a daughter and an elderly mother.

“It is very difficult to repay a loan, pay a housing rent and buy groceries without any job. Previously, it was also not easy, but now we do not know what to do. I call a microcredit organization, but their phones are turned off,” the woman complains.

Every Man for Himself

Most banks and microfinance organizations decide about the provision of a repayment holidays for each client individually. According to FINCA Bank PR specialist Adilet Tursunbekov, citizens who are not directly affected by quarantine also apply to them.

“We are allowing a three-month delay in loans repayment, but not everyone. For this, it is necessary to present a notification letter from work or provide a proof of income. However, there are also citizens whose activities are not affected by quarantine, but they also want a repayment holidays. Clients must also properly understand the situation,” Tursunbekov says.

Bakai Bank employee Alina Kasymova also assured that each client is approached individually under the current situation. They can choose to pay the entire amount at once after three months, or the bank can reschedule their payments to the next three months.

Demir Bank posted the information on the procedure for receiving a repayment holidays on its website. However, it notes that even during the repayment holidays, interest charge is not suspended.

Eldar Abakirov. Photo: gov.kg

In CABAR.asia interview, the former Deputy Minister of Economy of Kyrgyzstan Eldar Abakirov noted that he considers it incorrect to request interest payments from customers during the three-month repayment holidays.

“For the two-month quarantine period, it is necessary to reschedule all loan payments. At the time of quarantine, the customers should not be charged. That would be a fair decision. The National Bank is responsible for this. During the emergency, everything is paralyzed,” said Abakirov.

So far, very few banks are accommodating requests of the customers. Ulan Ashimov, loan officer of RSK Bank, assures that they will not charge interest on deferred loans.

“Considering the resolution of the National Bank, it was decided not to charge any commission, interest and other payments. […] The bank does not charge penalties on deferred loans now,” said Ashimov.

The state has no funds to cover for the suspension of interest on loans.

On April 7, the country’s Deputy Prime Minister Erkin Asrandiev speaking at a press conference also said that Kyrgyz citizens should not expect the suspension of interest on loans.

“It is important to understand that banks operate by the means of deposits. Interest charging cannot be cancelled for these deposits. The state has no funds to cover for the suspension of interest on loans,” Asrandiev explained (quote: kaktus.media).

“Banks Are Also Business”

Emil Umetaliev. Photo from personal Facebook page

Former Minister of Economy of Kyrgyzstan Emil Umetaliev notes banks are also in a challenging situation now. He highlights that the banking sector is also a business and the state should support it as well.

“They [banks] also do not take money out of nothing. We must not forget that this is the money of the similar to us people, businessmen. If someone does not repay the loan on time, then another client will not be able to get his deposit back,” Umetaliev believes.

In other countries, there are similar problems with loan repayments due to COVID-19. In Russia, large banks began to provide repayment holidays to their customers. People infected with coronavirus or those who lost their jobs are provided with a three-month repayment delay for the loan principal and interest.

The same terms apply to the banks’ customers in Kazakhstan. Loans repayments are deferred for three months, interest and penalties for this period are not charged. In Uzbekistan, banks are recommended to review loan agreements with customers.

Eldar Abakirov considers the measures taken by the National Bank of Kyrgyzstan to be insufficient. He believes that if the state does not intervene now, the consequences can be catastrophic.

The Government and the National Bank are responsible for citizens’ future.

“If we abandon business in the country now, later it will be too late and we will not be able to restore it even with tenfold resources. All loan agreements always prescribe force majeure circumstances. Such circumstances just arose. The Government and the National Bank are responsible for citizens’ future,” says Abakirov.

According to him, the state should also recommend all shopping centres and markets to refuse to collect a rent. Those businessmen who follow the recommendations should be exempted from property tax.

Title photo: tazabek.kg

This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project.

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