Kazakhstan’s increasing use of buy-now-pay-later (BNPL) schemes is problematic for economic authorities who worry about rising inflation and consumer debt. While BNPL provides immediate benefits to consumers, it poses risks to financial stability and may lead to inflated prices. Regulatory bodies are considering changes to improve transparency and protect consumers amidst growing debt levels.
In Kazakhstan, the popularity of buy-now-pay-later (BNPL) schemes is causing concern among officials tasked with managing inflation and consumer debt. While BNPL options providing short-term loans at low or zero interest have benefitted consumers, they pose risks to the banking sector and the broader economy. Increased regulatory scrutiny has emerged due to concerns regarding inflation and consumer debt metrics, as BNPL practices become significant revenue sources for lenders like Kaspi.kz and Halyk Savings Bank.
Countries worldwide are experiencing a surge in BNPL use, with the global market valued at $141.8 billion in 2021 and expected to grow at a compound annual growth rate (CAGR) of 33% until 2026. However, in Kazakhstan, regulators and banking experts fear that BNPL practices might aggravate inflation and household debt. Notably, consumer lending grew 34-42% annually from 2022-2023, which many attribute to BNPL adoption.
A report from the National Payments Corporation of Kazakhstan (NPCK) suggests that BNPL loans could constitute 50% of consumer loans. However, the rapid extension of credit to riskier borrowers is raising alarms about potential increases in loan defaults. Economist Alexander Yurin emphasized the need for stricter regulation in this sector to combat increasing non-performing loans and suggested enhanced transparency regarding the costs associated with BNPL schemes.
Amongst the regulatory community, concerns are mounting over agreements that keep cash prices the same as BNPL prices, leading to inflated costs for cash buyers. The head of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM), Madina Abylkasymova, remarked that hidden fees in BNPL agreements often result in similar pricing for cash and installment buyers.
Kazakh banking expert Galim Khusainov criticized the lack of oversight in BNPL operations, warning that these schemes could impact inflation and market competition. Many consumers, he noted, are opting for installment plans without realizing the potential interest costs. Despite these issues, BNPL remains popular among consumers and merchants, with some vendors claiming a 30% drop in sales without this financing option.
Recent studies highlight that BNPL users tend to be younger and more financially vulnerable, often leading to increased delinquency rates. Kazakhstan is particularly susceptible to these risks due to ongoing inflationary pressures, exacerbated by the COVID-19 crisis and geopolitical factors.
The intertwining of BNPL growth and inflation could create a detrimental cycle, threatening the viability of BNPL providers. Richard Wray, COO of Carta Worldwide, articulated the dual challenges faced by these providers amid high interest rates and declining consumer spending due to inflation. The Kazakh financial regulator is exploring adjustments to marketplace practices, though definitive action remains pending from the competition authority.
The rise of buy-now-pay-later schemes in Kazakhstan presents both opportunities and risks. While consumers benefit from access to credit, the potential for inflation and over-indebtedness could create severe consequences for the economy. Experts call for stricter regulations and transparency to ensure sustainable practices within the BNPL landscape, highlighting the urgent need for a balanced approach to safeguard consumer interests and market stability.
Original Source: www.intellinews.com
