Types of Microfinance Institutions
TYPES OF MICROFINANCE INSTITUTIONS (MFIs): MICROFINANCE COMPANY (MFC) AND MICROCREDIT COMPANY (MCC)
Publication date: January 17, 2018 Last updated: October 1, 2023
On March 29, 2016, amendments to Federal Law No. 151-FZ dated July 2, 2010 "On Microfinance Activities and Microfinance Institutions" (hereinafter — FL No. 151) came into force, which divided all microfinance institutions (MFIs) into two types: microfinance companies (MFCs) and microcredit companies (MCCs).
Note: In 2020–2023, additional legislative changes were introduced that tightened requirements for MFI operations. These changes are also reflected in this article.
Definition of Terms
FL No. 151 contains the following key terms and definitions:
Microfinance activities:
- Activities of legal entities having the status of a microfinance institution, as well as other legal entities (credit organizations, credit cooperatives, pawnshops), for providing microloans (microfinancing).
Microfinance institution (MFI):
- A legal entity engaged in microfinance activities, information about which is entered in the state register of microfinance institutions. MFIs can operate as a microfinance company (MFC) or a microcredit company (MCC).
Microfinance company (MFC):
- A type of MFI meeting enhanced capital requirements (minimum 70 million rubles), with the right to attract funds from individuals and legal entities, issue bonds, and conduct remote client identification.
Microcredit company (MCC):
- A type of MFI with less stringent capital requirements but limited opportunities for attracting funds and working with clients.
Microloan:
- A loan provided by a lender to a borrower under conditions stipulated by the loan agreement, in an amount not exceeding the maximum amount of the borrower's obligations to the lender on the principal debt.
Microloan agreement:
- A loan agreement, the amount of which does not exceed the maximum amount of the borrower's obligations to the lender on the principal debt.
Main Features of MFC and MCC Operations
| Parameter/Requirement | MFC | MCC |
|---|---|---|
| Equity (capital) requirements | Minimum capital — 70 million rubles, sources of origin confirmed. | No minimum capital requirements. |
| Ability to attract funds from legal entities | Yes, without restrictions. | Yes, only from founders (participants, shareholders). |
| Ability to attract funds from individuals | Yes, with restrictions (e.g., minimum loan amount — 1.5 million rubles). | Yes, only from founders (participants, shareholders). |
| Maximum microloan amount for an individual | 1 million rubles (principal debt amount). | 500 thousand rubles (principal debt amount). |
| Maximum microloan amount for a legal entity or individual entrepreneur | 3 million rubles (principal debt amount). | 3 million rubles (principal debt amount). |
| Ability to issue and place bonds | Yes. | No. |
| Ability to authorize a credit institution to conduct client identification | Yes. | No. |
| Ability to issue online microloans with remote identification | Yes. | No. |
| Ability to engage in production and trading activities | No. | Yes. |
| Mandatory audit | Yes. | No. |
| Mandatory disclosure of annual financial statements with auditor's report | Yes. | No. |
| Official website presence | Yes. | No (but recommended by the Bank of Russia). |
Legislative Changes from 2021 to 2023
1. New Requirements for MFIs
- Since 2021, the Bank of Russia has required all MFIs, regardless of type, to use the Unified Portal of Public Services (UPPS) for submitting reports.
- For MFCs with capital exceeding 500 million rubles, mandatory audits at least once a year have been introduced (Bank of Russia Instruction dated December 21, 2020 No. 5658-U).
2. Changes in Client Relations
- Since 2022, new client identification rules have been introduced as part of anti-money laundering (AML/CFT) efforts. MFCs are now required to use only accredited certification authorities to verify clients' electronic signatures.
3. Exclusion from the MFI Register
- In accordance with subparagraph 5 of paragraph 1.1 of Article 7 of FL No. 151, the Bank of Russia has the right to exclude an MFI from the register if it has not provided a single microloan within 1 year.
- Since 2023, the Bank of Russia has strengthened control over MFIs that have not provided loans for more than 6 months.
MFI Subtype: Microfinance Institution for Entrepreneurial Financing
According to Bank of Russia Instruction No. 3964-U dated February 20, 2016, a new MFI category has been introduced — microfinance institution for entrepreneurial financing. This status can be obtained by both MFCs and MCCs when the following conditions are met:
Number of microloan agreements:
- At least 70% of the total number of concluded agreements must be with legal entities and individual entrepreneurs.
Microloan volume:
- At least 75% of the total volume of issued microloans must be directed to support small and medium-sized businesses.
Conclusion
Microfinance institutions play an important role in the development of the financial market, especially in supporting small and medium-sized businesses. However, legislative requirements are constantly changing, and it is important to monitor current norms and regulations.
Important: If an MFI does not meet the established requirements or does not provide microloans within a year, the Bank of Russia may exclude it from the register. It is recommended to regularly check for legislative and regulatory updates.