The non-bank credit market in Latvia is very recent, but has already managed to gain a significant role in the common market. The turnover of EUR 94.3 million in 2013 is already indicative of the size of the industry.
The number of companies has shrunk over time, but the service has become much more secure for the customer. By informing people and dispelling myths, fast loans have become much more popular among Latvian consumers.
About 8 years ago, in spring 2007
The first non-bank lender companies appeared in Latvia . People’s interest in the possibility of borrowing small amounts of money quickly grew and the number of companies increased significantly. In the early days of the industry there was no strict regulation and supervision. The minimum share capital of 2000 lats or 2845.7 euros was sufficient to start a non-bank lender’s business.
The structure and regulatory mechanisms of this sector have changed considerably over the years. The industry is well organized, licenses are in place, customer interests are being defended, and non-bank lending companies are providing support in a variety of social areas. Fast credit has gradually gained consumer attention and the non-bank credit market is considered to be a very good and profitable business in the long run.
The first market changes were made in 2011
Amendments were made to the Consumer Rights Protection Law, which provided that, from 2011, only companies that had obtained a permit or license from the CRPC could issue loans. The introduction of the license reduced competition and many companies had to close down.
One of the reasons was the price of the license: EUR 71.1 thousand for issue and EUR 14.2 thousand for re-registration. The second reason was that the company’s capital had to be at least EUR 425 thousand. It is easy to conclude that the main reason for the closure was a lack of funds.
Nevertheless, several companies that are still operating today continue to operate. Before the introduction of the CRPC license, there were 50 such companies on the Latvian market, but in 2014, 18 companies were granted a license to issue fast loans.
In 2013, the change continued
The Latvian Association of Non-bank Lenders (LNKA) started its activities. An organization that started serious work in order to get this industry organized. Members of the organization account for 80% of the market share. The first one that companies introduced was a standard of good practice. This encouraged responsible borrowing and facilitated additional measures to protect borrowers.
The Code of Good Practice for businesses is also evidenced by the ” Responsible Lender ” branding on their websites. The next step was to ban loans to young people between the ages of 18 and 19, as lenders could not fully assess the solvency of their customers at that time. In the spring of 2013, members of the organization agreed to exchange data on individuals who have an active relationship or debt with one of the companies. These actions significantly increased the number of refusals. In 2014, the CRPC introduced guidelines requiring creditors to assess customer solvency much more strictly by requiring a certain amount of information.
In 2013, LNKA introduced the possibility for the clients
Of the association members to put themselves on a list where people cannot be granted fast loans for a definite term. In the same year a new order is created – the service of a mediator. This allows the consumer and one of the members of the association to negotiate a progressive repayment of the debt, which is assessed on an individual basis by each customer. In 2013, the level of penalties was also reduced. LNKA members agreed that their amount should not exceed 100% of the debt amount.
According to population surveys, many people find the quick credit service convenient, modern and operational. Many people prefer to take out fast loans instead of bank loans because the process is much less time consuming, much simpler, and it is impossible to borrow small amounts at banks.
As technology evolves, it is believed that lenders’ ability to provide banking services is much faster and more convenient, which could lead to significant changes in this market in the future. In Latvia, the non-bank lending industry is a step ahead of many other countries in the world, as the order of the sector is closely monitored and lower commissions are only in our neighboring country Lithuania.