Myth vs Reality
In reality, online lending is completely legal and fair business. Moreover, the activities of MFOs are rather strictly regulated. It is just as easy to refute the criminal record of many microfinance providers. According to domestic legislation, persons with a criminal record in the economic sphere are prohibited from holding managerial positions in financial companies or being their owners. This prohibition also applies to online lending business. Such myths arise from the activities of the so-called “black creditors”, as well as due to the low level of public awareness of the business activities.
In reality, online lending business, like any other legal entity, reports to the tax office. Additionally, they regularly send their financial statements to the baking instnkitution. According to official data, the average profitability of microfinance organizations is about 6-8% annually. Substantial sums are spent on advertising, telephone communications, rent. Another 24% per annum is paid to the depositors of the company who keep their savings in it. As a result, the profitability indicators of the microfinance sector are quite comparable to those of other business sectors.
The same myth can be attributed to such variations as “MFIs employees deliberately give out incorrect information about the amount of overpayments” and “MFIs employees are trying to bring clients into late payment so that huge interest runs up.” In fact, each MFI is obliged, according to the law to indicate the full cost of the loan being issued in large print in the upper right corner at the top on the very first page of the agreement. Almost all organizations fulfill this condition. It is not at all profitable to make clients into debt.
Although only an ID is required to obtain a loan, MFIs will certainly check the client for a number of parameters. There are several obligatory conditions for borrowers:
- availability of employment;
- age from 18 years old;
- the US citizenship;
- lack of mental disorders.
In fact, in their daily activities, MFIs are guided by the provisions of Federal Law. Options for interaction with debtors are clearly regulated by this law. Violation of the law leads to the imposition of serious sanctions, including the possibility of excluding MFIs from the register, which in fact would mean a ban on doing business.
In fact, the obligations assumed must always be fulfilled.Online borrowers often think that if a client has to pay a bank loan back, this does not apply to MFIs. They believe there is an option to write off all debts (declare oneself bankrupt). After the adoption of the relevant law, this topic has become quite popular. However, in fact, this is not 100% true.