Performance of loan agreements concluded by organizations that do not have status of microfinancial ones discussed in Almaty

The Almaty City Court conducted a round table discussion on "Legal issues and practical problems of performance of loan agreements concluded by companies that do not have the status of microfinancial ones".

Judges, representatives of the Association of Legal Entities "Kazakhstan Association of Fintech", scientists, the representatives of arbitration courts, akimat, prosecutor's office and the National Bank took part in its work.

The participants of the round table discussed topical issues arising during the consideration of disputes between legal entities and individuals regarding the performance of loan agreements.

Opening the discussion, the chairman of the Almaty City Court Nurgazy Abdikanov outlined the need for strict compliance to contractual relations with the requirements of legislation by all parties and no allowance of violations of the rights of citizens to credit organizations in their activities.

The main topic discussed was the legal justification for the ability of credit organizations to accommodate with loans in the absence of registration with the registrar as a microfinancing one. For example, the representatives of the Association of Legal Entities "Kazakhstan Association of Finteh" and the scientists who came have expressed the opinion that legal entities have the right to accommodate the population with loans, as there is no prohibition of such activity in legislation, and overly excessive penalties are subject to reduction if they do not correspond to the principle of reasonableness by courts.

In their turn, the judges indicated that the activities of such companies lead to a massive violation of the citizens’ rights. It was noted that the city courts began to receive claims for recovery of debts from citizens from various financial companies, many times higher than the original loan amount. The debt grew exponentially and when there was a slight delay in payments for such loans, it became impossible to repay it. An example is given when a citizen was accommodated with a loan of 80,000 tenge for 7 calendar days at 0% per annum in 2015. At the time of the filing of the claim in June 2017, the amount of the debt was already KZT16.192.343. Thus, the dept increased more than 202 times in less than 2 years, taking into account the fact that the loan was interest-free.

The judges noted that the profitability of these companies is many times higher than the maximum annual effective interest rate set by the National Bank.

The current situation, when a creditor having accommodated with a small loan amount, in a short period of time collects dept many times exceeding it without taking into account the financial position and income of the borrower puts all debtors in an extremely disadvantageous position and make them directly dependent on the creditor, that is debt bondage.

In their turn, the courts take measures to protect the rights of each such borrower who has loaned a small amount of money and actually got into debt bondage.

The courts believe that bargains made by credit organizations as entrepreneurial activity, do not have the status of a microfinance organization are insignificant in their essence. They were made without passing the notification procedure and obtaining the status of a microfinance organization. The terms of such contracts do not correspond to the essential requirements of legal acts, their content is aimed at unjust enrichment at the expense of money and property of borrowers, and their enforcement will lead to violation of the fundamental human right to an adequate standard of living. This violation of fundamental human rights requires adequate protection including judicial protection in Kazakhstan.

The judges of Almaty expressed their opinion that they will make best effort to ensure equal conditions for the protection of the creditor and borrower, implementing the principle of the supremacy of law and the norms of the Constitution in practice.

At the end, the participants of the round table arrived at a common view on the need for an early legislative regulation of the activities of credit organizations that do not have the status of microfinance ones with the creation of legal bases for their activities.