Ukrainian con­sumers have tough time find­ing lenders who are fair and eth­i­cal


In Ukraine, bor­row­ing money, even from a fi­nan­cial in­sti­tu­tion, is still seen as a last re­sort. This is de­spite the fact that most Ukraini­ans can’t af­ford a car or a mort­gage or any other big house­hold pur­chase on their in­comes.

While in many coun­tries con­sumer credit is a com­mon prac­tice, Ukraini­ans are un­ac­cus­tomed to tak­ing such loans. Fi­nan­cial in­sti­tu­tions of­ten use this un­fa­mil­iar­ity to their ad­van­tage by run­ning de­cep­tive ad­ver­tis­ing and of­fer­ing un­fair and opaque con­di­tions, a re­cent U. S. Agency for In­ter­na­tional De­vel­op­ment con­sumer lending sur­vey has re­vealed.

“Ukrainian con­sumers are gen­er­ally mis­in­formed and un­pro­tected when it comes to bor­row­ing money from fi­nan­cial in­sti­tu­tions,” Yu­lia Vitka, deputy chief of party at USAID’s Fi­nan­cial Sec­tor Trans­for­ma­tion Project, said at the “Pro­tec­tion of Con­sumer Rights” in­ter­na­tional con­fer­ence in Kyiv on Sept. 12.

The sur­vey showed that 73.6 per­cent of ads gave no in­for­ma­tion about the cost of a loan. Some TV com­mer­cials promised fast loans, of­ten in cash, with only a pass­port be­ing re­quired to ob­tain a loan.

Send­ing “mys­tery shop­pers” pos­ing as po­ten­tial bor­row­ers, the re­searchers found out that 68 per­cent of vis­its to fi­nan­cial in­sti­tu­tions were lim­ited to oral con­sul­ta­tions with­out any writ­ten ma­te­ri­als or a sam­ple con­tract.

As for the loan agree­ments, ac­cord­ing to the USAID sur­vey, two thirds didn’t com­ply with the leg­is­la­tion. They ei­ther lacked in­for­ma­tion, such as a clear pay­ment sched­ule or the to­tal cost of the loan, or in­cluded at least one il­le­gal item, such as hid­den com­mis­sion fees. And more than half of the con­tracts had un­fair terms and con­di­tions that vi­o­lated a bor­rower’s rights, the sur­vey con­cluded.


Kateryna Rozhkova, the deputy gov­er­nor of the Na­tional Bank of Ukraine, said that the poor state of af­fairs of con­sumer lending mar­ket was ex­ac­er­bated by low fi­nan­cial lit­er­acy of Ukraini­ans and poor stan­dards of in­for­ma­tion dis­clo­sure for lenders.

A draft law on im­prov­ing pro­tec­tions for con­sumers of fi­nan­cial ser­vices is pre­pared for sec­ond read­ing in par­lia­ment, she told the con­fer­ence on Sept. 12.

“If passed, the bill will give the NBU the man­date to raise fi­nan­cial aware­ness and mon­i­tor how much in­for­ma­tion con­sumers get about all types of bank­ing ser­vices,” Rozhkova said.

The USAID sur­vey also showed that bor­row­ers felt un­pro­tected in the event of dis­pute with a fi­nan­cial in­sti­tu­tion. The only ex­ist­ing op­tion is go­ing to court, but the process may take months. Most wronged bor­row­ers de­cide not to stand up for their rights, and sim­ply avoid tak­ing out any loans at all in fu­ture.

In or­der to in­crease le­gal pro­tec­tions for con­sumers, USAID has drafted a bill propos­ing to es­tab­lish the po­si­tion of fi­nan­cial om­buds­man to re­solve dis­putes be­tween bor­row­ers and fi­nan­cial in­sti­tu­tions quickly and out-of-court.

Vitka said that the or­ga­ni­za­tion would con­duct another two sim­i­lar sur­veys to gauge the ef­fect of the new law on con­sumer lending passed by Ukraine’s par­lia­ment, the Verkhovna Rada, in Novem­ber 2016. The law came into force on June 10, 2017.

Growth prospects

All the same, the de­vel­op­ment of the con­sumer lending mar­ket in Ukraine will pri­mar­ily de­pend on the coun­try’s eco­nomic growth, ex­perts be­lieve.

One of the main im­ped­i­ments to mar­ket de­vel­op­ment is Ukraini­ans’ low in­come per capita and low dis­pos­able in­come, which, in con­junc­tion with high in­ter­est rates on loans, make it hard for reg­u­lar Ukraini­ans to bor­row and re­pay. In­ter­est rates in banks are cur­rently over 20 per­cent per an­num, and even higher at non-bank­ing fi­nan­cial in­sti­tu­tions (NBFIs).

Ac­cord­ing to data from the 2016 IFC Pop­u­la­tion Debt Sur­vey, a third of bor­row­ers in Ukraine take loans of Hr 4,000–6,000 ($154–231). Twenty-five per­cent owe Hr 4,000 or less, while about 21 per­cent owe over Hr 8,000 ($308).

Banks re­main the main source of con­sumer loans, but in re­cent years they have tight­ened their lending poli­cies due to the eco­nomic cri­sis and high risk. In ad­di­tion, the Ukrainian bank­ing sys­tem is rid­dled with dodgy debts — 58 per­cent of all loans are non-per­form­ing, ac­cord­ing to the NBU.

More­over, of the 90 banks op­er­at­ing in the coun­try, only 15 are ac­tively lending. The undis­puted leader on con­sumer lending mar­ket, Pri­vatBank, was na­tion­al­ized at the end of De­cem­ber 2016.

Ac­cord­ing to NBU data, the to­tal credit port­fo­lio of Ukrainian banks amounted to Hr 955 bil­lion ($36.7 bil­lion) as of end of July 2017. Con­sumer loans ac­count for only 17 per­cent of that sum, or about Hr 162 bil­lion ($6.2 bil­lion).

Try­ing to ben­e­fit from the banks’ low ap­petite for risk, non-bank­ing fi­nan­cial in­sti­tu­tions have been de­vel­op­ing their retail net­works and have launched on­line lending ser­vices for in­di­vid­u­als.

How­ever, the amount of loans pro­vided by non-bank­ing fi­nan­cial in­sti­tu­tions is sig­nif­i­cantly lower com­pared to the sum lent by the banks — Hr 13.4 bil­lion ($515,000) as of the end of 2016.

Ukrainian bankers speak at the in­ter­na­tional con­fer­ence on con­sumer lending prac­tices or­ga­nized by the USAID Fi­nan­cial Sec­tor Trans­for­ma­tion Project in Kyiv on Sept. 12. (Cour­tesy of USAID)

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