Kazakhstan is caught in a vicious cycle of debt. The pandemic has only made matters worse

Since then, the volume of personal loans in the country has more than doubled, reaching 6.6 trillion tenge (over $ 17 billion) at the end of 2019. Meanwhile, microloans, interest-free loans, Installment plans for the purchase of various goods and services have become widespread. These forms of credit were intended to compensate for weak wage growth – the result of the creeping devaluation of the tenge and the rising cost of imported goods, which occupy a large share in the Kazakh consumption basket.

These services were provided by international financial institutions such as Citi, the Dutch banking group ABN AMRO and HSBC, which actively entered the Kazakh market in the late 1990s. Local players quickly adopted their approaches and lending instruments. , transferring them from the premium segment to the intermediate customer segment.

In addition to mortgages, the most popular retail product during the 2000s was credit cards. However, the growth of delinquencies through this channel and the loss of cheap funding sources in the West after the 2008 financial crisis prompted banks to turn to expensive retail loans and serve the affluent category of customers.

Lending to eradicate poverty?

Microfinance organizations began to thrive in response, notably with the popularization of Nobel Peace Prize winner and Bangladeshi banker Muhammad Yunus, who since the 1980s has promoted credit as a means of eradicating poverty – and who has regularly attended at the Astana Economic Forum in Kazakhstan.

As non-resource sectors of the Kazakh economy slowed down and the cost of domestic financing rose, banks also began to turn to more active retail lending. This coincided with the digitization of the country’s credit sector, resulting in unprecedented lending flexibility.

As a result, almost all goods and services could be purchased through an interest-free installment plan or a full loan.

In mid-2019, immediately after the presidential elections, the then newly elected Kazakh President, Kassym-Jomart Tokayev, decided to grant a credit amnesty for citizens whose debts did not exceed three million tenge (7,600- $ 7,800). The effect of this measure was found to be limited, as it initially targeted socially vulnerable segments of society.

Other groups of citizens have not received any assistance, although their situation is becoming just as vulnerable.

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