Land of Opportunity
Russia’s consumer boom is helping to fuel an emerging credit and collection industry
By Anne Rosso
Published: July 30, 2007
For many years, Russia has been viewed as something of an enigma in the business world. Since the end of the Cold War, the country has undergone a few reinventions, volleying between a bleak, bankrupt giant and a neon-lit emerging market. But thanks in part to a steady rise in disposable consumer income and increased access to credit cards, today the nation is enjoying a dizzying consumer boom and is fast becoming a land of opportunity for collection agencies.
Though the country’s economic outlook is positive right now, Russia has seen its share of rocky financial markets. It bounced back relatively quickly from its 1998 economic collapse, during which President Boris Yeltsin devalued the ruble and the country defaulted on $40 billion in domestic debt. At that time, many Russians lost their savings as the stock market crashed, inflation rose and income levels dropped sharply.
However, the crisis did spur many banks to implement debt management strategies for the first time. And over the last decade, rising oil prices and a relatively stable political environment have helped Russia’s economy rebound, easing consumer fears and encouraging spending. In fact, the Federal Statistics Service reported that Russia’s economy expanded in the first quarter of 2007 at the fastest pace in six years.
Igor Zhigunov, director of Gorodskoi Mortgage Bank’s Northwest region, told the St. Peterberg Times in June that car loans and mortgages are the most dynamic banking service segments in Russia today, with growth up more than 150 percent over last year. He also predicted that over the next several years, the volume of mortgages will exceed the volume of consumer loans.
With private consumption as well as consumer credit on the rise, consumer debt is on the rise, too. According to a February 2007 article in Kommersant, a Russian newspaper, the Central Bank of Russia reported that by Jan. 1, 2007, Russian consumers’ overdue debts to banks had more than tripled from the previous year, reaching nearly 33 billion rubles.
The article went on to note that experts believe the numbers obtained by the Central Bank do not accurately reflect the banking sector’s true state of affairs, and that the actual situation is much worse. Whether or not that speculation is true, it’s clear the market for debt collection agencies in Russia, while new, holds much promise.
“The collection market in Russia is small yet,” said Alexander Scherbakov, a lawyer for AlterConsult, a collection agency in Moscow. “The total amount of debts processed by Russian collector agencies is variously estimated from $250 million to $500 million, but this market is rapidly developing. Just a few years ago, there were only three or four [debt collection] companies, but now they amount to over 50.”
The debt collection industry in Russia is governed by three main laws, Scherbakov said: The Russian Federation Civil Code, the Code of Procedure and the Federal Law “On Execution Proceedings.”
“Our laws are reputed as ‘pro debtor,’” he noted. “A creditor has not so many options to protect his or her rights. The proceedings can last for years, and the execution of [the court’s] decisions is extremely ineffective.”
In spite of the challenges facing agencies, the credit and collection system in Russia is slowly evolving. For instance, this year a new regulation went into effect requiring banks to disclose their effective credit rates to consumers with all additional charges taken into account and to share consumer credit information with credit bureaus. Prior to the new law, Russian banks compiled their own credit ratings and didn’t often share the information amongst themselves. Many debtors have been surprised to discover that some of Russia’s large banks issue credit at a 90 percent annual rate, Scherbakov said.
Scherbakov also noted that a weak regulatory environment in Russia—coupled with low living standards and consumers’ laissez-faire attitudes toward personal debt—can make the collection process tough.
“Some of our citizens don’t think it shameful to borrow without return,” he said. “The banks trying to return their own money in some cases are negatively presented by public mind. The credit culture has not yet molded.”
But with more and more consumers tucking plastic into their wallets, Russian credit culture is set to evolve quickly—and it’s poised to take the credit and collection industry along for the ride.
Anne Rosso is associate editor of Collector.
Источник: Collector Magazine, Volume 73, number 1
Published by ACA International