Kazakhstan’s BNPL Dilemma: A Balancing Act Between Growth and Economic Stability
The rise of buy-now-pay-later (BNPL) schemes in Kazakhstan presents paradoxical implications for the economy, fostering e-commerce growth while raising concerns over inflation and household debt levels. Financial authorities recognize the necessity for regulation in this burgeoning market. Experts recommend stricter oversight to mitigate risks associated with easy access to consumer credit. Without proper regulation, BNPL could exacerbate economic issues in the country.
The proliferation of buy-now-pay-later (BNPL) schemes in Kazakhstan poses a challenge for authorities striving to manage inflation and consumer debt. While these short-term loans have aided Kazakhstan’s e-commerce growth, concerns are rising regarding their long-term impact on the banking sector. With significant success attributed to fintech companies like Kaspi.kz, the economic ramifications could potentially be detrimental if not monitored closely.
A Bloomberg report from December revealed that BNPL popularity in Kazakhstan has attracted regulatory scrutiny due to potential inflationary impacts and rising consumer debt. These schemes are crucial for lenders, contributing substantially to their revenue, as digital marketplace sales soared to KZT1.77 trillion ($3.7 billion) last year. Kaspi.kz controls over 75% of this sector and considers BNPL a vital product, accounting for nearly half of its lending.
Kazakh lenders’ BNPL portfolios reached KZT2.3 trillion ($4.5 billion) by September 2024, marking a 17% increase for the year. This trend reflects a broader potential the BNPL market holds with global expectations for growth—projected at a 33% compound annual growth rate until 2026.
However, concerns persist regarding BNPL’s role in inflating prices and escalating household debt levels. The National Payments Corporation of Kazakhstan (NPCK) indicates that BNPLs could constitute 50% of consumer loans, a staggering figure that hints at extensive financial strain on households. Warnings from various financial experts and institutions underscore the risk of overindebtedness brought on by easy access to consumer credit through BNPLs.
Economist Alexander Yurin noted that although maximum interest rates have been reduced for secured loans, unsecured loans’ rates remain disproportionately high. This discrepancy allows financial institutions to shift credit risk onto borrowers, often leading to inflated loan interest rates. Yurin also proposed stricter regulations and clearer communication regarding installment loans to protect consumers from ascending debt traps.
The ARDFM has indicated concern over agreements where BNPL prices equal cash prices, leading consumers to perceive no financial advantage to lump-sum payments, which can conceal inflated pricing stemming from hidden fees. Critics like Madina Abylkasymova emphasize that these hidden costs, prevalent in many BNPL agreements, contribute significantly to consumer expenditure.
There exists a pressing need for oversight in the BNPL market to mitigate potential inflationary pressures. Banking sector expert Galim Khusainov has pointed out the lack of regulation surrounding BNPL, suggesting that the ease of accessing such credit is fueling both inflation and over-indebtedness. The risk of consumers unknowingly entering financially detrimental agreements remains a pressing concern.
Despite apprehensions, BNPL options remain popular among consumers, prompting some vendors to report a stark decline in sales without financing. The allure of BNPL persists, with reports indicating that users tend to be younger, more indebted, and at greater risk of delinquency, which could further endanger overall economic stability in Kazakhstan.
The dual challenges of high interest rates and burgeoning inflation complicate the BNPL landscape. According to Richard Wray, COO of Carta Worldwide, while higher interest rates could make BNPL more attractive, they simultaneously threaten the operational viability of BNPL providers, emphasizing that regulation may align the interests of consumers and providers alike.
Regulatory efforts are underway to align BNPL practices with competitive pricing and safeguard consumer interests in Kazakhstan. However, the competition authority’s response remains sluggish, necessitating immediate attention as BNPL continues to escalate.
The BNPL phenomenon in Kazakhstan, while bolstering e-commerce growth, poses critical challenges in terms of inflation and consumer debt management. Regulatory oversight appears crucial to curtail escalating household debt driven by these financial products. With increasing concern from financial experts and regulators, a balanced approach to BNPL could protect consumers and sustain market integrity. As such, the call for enhanced transparency and regulation in the BNPL sector is essential to foster long-term economic stability in Kazakhstan.
Original Source: www.intellinews.com
