Interview with the CEO of JSC MFC Mikro Kapital, Hakob Khotsanyan

15.08.2019

mintosblog

Mikro Kapital has been operating on the Mintos marketplace since April of this year, initially offering its business loans from the Russian Federation. At the beginning of August, the loan originator already expanded its presence on Mintos by placing more loans for investment from a different country – Moldova.

We caught up with the CEO of JSC MFC Mikro Kapital, Hakob Khotsanyan, to learn more about the company’s future plans, its place in the Russian market and more.

Firstly, can you please tell us a little bit more about Mikro Kapital?

Our roots go back to 2008 when a legal entity under the brand of Mikro Kapital was established in the Russian Federation. After 8 years of activity, Mikro Kapital acquired another international and well-known Microfinance company subsidiary in Russia, FINCA Russia who shared the same values and principles of transparency as Mikro Kapital. Today, the joint company has 48 offices in the Russian Federation and more than 200 employees.

The principal difference of Mikro Kapital from similar microfinance players in the market is that the company sees sustainable small and medium business, who for different reasons have limited access to traditional banking financing instruments, as a strategic client segment.

Why should investors invest in Mikro Kapital loans on Mintos?

The stable financial position of the company, the rising dynamics of key performance indicators, the low level of credit risk of borrowers, as well as almost 20 years of experience allowed Mikro Kapital to receive the highest rating among all Russian institutional borrowers on the Mintos marketplace (A-, borrower’s reliability is above average). An additional advantage of Mikro Kapital on the marketplace is its obligations to repurchase in case of a default of the borrower (buyback guarantee), which minimizes investors’ risks on the platform.

Are you planning on scaling up your business in markets you are already operating in?

Despite the slow pace of GDP growth in Russia in recent years, we annually plan and achieve the growth of key business indicators – both qualitative and quantitative. In addition to offering loans to our traditional clients, we are now testing new niche clients such as potential customers in the e-commerce sector. Online sales have grown 20-25% annually, but for many entrepreneurs, classical banking credits are still unavailable, and we believe that we can be useful for those who choose to develop online sales as well.

Does Mikro Kapital have plans for expansion into countries that you don’t currently operate in?

Mikro Kapital is a part of Mikro Kapital Group, an international holding with headquarters in Luxembourg, which unites companies offering a wide range of financial and related services in more than 20 countries. The group invests mainly in microfinance and impact finance focusing on the countries along the Silk Road. I am sure that in the nearest future we will appear in new countries as well.

How has Mikro Kapital performed so far in 2019?

Mikro Kapital has shown stable performance over the first half of 2019 and delivered the expected results of profitability and outreach. In 2019 Mikro Kapital joined Mintos and expanded the list of potential channels for financing its portfolio growth. We are looking forward to further increasing our business with Mintos during the second half of 2019.

How is Mikro Kapital regulated?

Microfinance activity in Russia is regulated by Federal law 151 that came into force in July 2010. The Central Bank of Russia has been actively regulating the microfinance market. Also, in 2016 in Russia a federal law came into force, dividing all microfinance organisations into two types: the MFC (microfinance company) and the MCC (microcredit company). Thus, to obtain the status of an MFC, it is necessary to meet several strict requirements imposed by the Central Bank of the Russian Federation (loan amount, minimum capital size, prudential ratios, etc.). Mikro Kapital possesses the status of MFC, which is kind of an “elite group” in the microfinance market.

What are the myths and legends of the modern market of microfinance companies in Russia?

The market is heterogeneous, aggressive marketing policies are carried out by companies for which the target customer segment is those who are willing to borrow money until they receive a paycheck at high-interest rates. Those who work with a more price-sensitive client segment use point-like tools in their advancement and therefore are not so noticeable in the information space. This situation has led to several preconceptions surrounding the activities of microfinance companies. The first myth is – microfinance companies issue only small amounts. The second myth – the borrower pays 100 per cent or more on the loan. The third myth – the client receives money until they receive their paycheck. However, with all these myths, there are very limited players like Mikro Kapital that are actually providing close to banking services to clients that for some reason have limited access to finance. Our pricing is very close to the banking sector and we charge an APR of around 34%.

Who are your clients? And what can you offer them?

Our clients work in the field of trade, production, services and agriculture. These are small and medium-sized entrepreneurs, as well as individuals, limited for one reason or another in access to classic banking products. The size of the loan varies depending on the need and ability to bear the credit burden from 20 thousand to 30 million rubles. As for the terms, we can issue a loan with repayment within the following 60 months.

What sets Mikro Kapital apart from the competition, how are you different?

Unlike most microfinance companies in Russia, we do not issue payday loans. We provide financial services to entrepreneurs so that they can replenish floating assets for purchases and production, obtain new equipment and transport, expand trading and storage facilities, fulfil contracts and collect new crops.

Our business model is focused on working with clients with a longer life cycle than other MFIs in Russia. Also, we execute the function of a financial consultant who helps our clients in the stages of collecting and preparing documents that meet our requirements to fully repaying the debt.

In addition, we approach our clients individually and often offer solutions that are designed specifically for individual clients. Such an approach ensures the best service for the client and better repayment quality.

One of the concerns of your clients is that your license might be taken away from you and the debt will be sold to third parties, who won’t be so friendly. How should someone protect themselves?

All microfinance companies are included in the register of the Central Bank of the Russian Federation. You can check the information on the Central Bank website (https://www.cbr.ru/Content/FileDocument/File/14199/list_MFO.xlsx) , the data is constantly updated.

Additionally, each MFO should be a member of SRO (self-regulated organisation). Our company is a member of SRO “MiR” and members of the SRO “MiR” are companies engaged in microfinance activities within the framework of the current legislation of the Russian Federation.

Before considering any relationship with an MFO, it is highly recommended to check the status of the organisation with the help of the aforementioned resources. In addition, we recommend that you devote time to study the financials and the Audit Report of the company, which you can find on our website (www.mikrokapital.ru).

Adequacy of capital, availability of enough liquidity, asset quality, diversified assets and obligations, and many other ratios are those that will help you to make a balanced decision. Such an integrated approach to evaluation will minimize the risk of entering into a loan agreement with a company.

Hakob Khotsanyan, CEO of JSC MFC Mikro Kapital

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