Kazakhstan’s embrace of buy-now-pay-later (BNPL) schemes is raising concerns about inflation and consumer debt sustainability. The popularity of BNPL, especially via local fintech like Kaspi.kz, is generating scrutiny from regulators. Reports indicate that BNPL may account for a substantial portion of consumer loans, prompting calls for tighter regulations to protect consumers. The interplay between BNPL demand and inflation risks creates a precarious economic environment.
Kazakhstan’s increasing embrace of buy-now-pay-later (BNPL) schemes has sparked concerns among officials tasked with managing inflation and consumer debt. This trend has emerged alongside the country’s growth as an e-commerce hub, benefiting consumers but leading to potential long-term economic consequences. Kazakhstan’s prominence in the fintech sector, highlighted by companies like Kaspi.kz, raises questions about the sustainability of such credit options for the banking system.
In December, a report from Bloomberg highlighted regulatory scrutiny of BNPL’s popularity within online marketplaces, linking it to concerns over inflation and consumer debt. While BNPL options provide immediate financial relief, they have also become lucrative for lenders such as Kaspi.kz and Halyk Savings Bank, which earn substantial commissions. The digital marketplace in Kazakhstan saw a 60% sales increase last year, with BNPL representing a significant portion of Kaspi.kz’s lending.
As of September 2024, the total BNPL portfolios of Kazakh lenders reached KZT2.3 trillion ($4.5 billion), reflecting a 17% year-to-date growth. The global BNPL market is booming as well, with predictions of reaching $141.8 billion in valuation and a user base surpassing 900 million by 2027. However, local regulators and experts fear that the widespread availability of BNPL may inflate prices and encourage excessive household debt.
Concerns regarding overindebtedness and inflation are evident in the findings of the National Payments Corporation of Kazakhstan, which suggests that BNPL may constitute up to 50% of consumer loans, although precise statistics are challenging to obtain. Reports indicate that during 2022-2023, consumer lending increased significantly, fueled in part by BNPL schemes, raising worries about the sustainability of this consumer credit model.
Economist Alexander Yurin warned of a looming spike in loan defaults and emphasized the need for stricter regulations on consumer lending, particularly concerning BNPL options. He noted that high-interest rates on unsecured loans could push banks to impose greater risks on borrowers. Increased regulation could address the growth of non-performing loans by ensuring better disclosure of costs associated with BNPL schemes, thus protecting consumers.
Madina Abylkasymova, head of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM), raised alarms about potential inflationary risks tied to BNPL arrangements where hidden fees could inflate product costs. Furthermore, Galim Khusainov criticized the lack of regulatory oversight in BNPL practices and argued that consumers often do not understand the implications of installment plans on final costs, causing financial strain even for those who do not rely on such credit.
Despite the challenges posed by BNPL, its popularity remains high among customers and merchants alike, with some reports indicating significant sales declines without the presence of financing options. The approach of maintaining a single price for products is defended by local banks and fintech firms as a means to streamline customer experience.
The Bank of International Settlements (BIS) indicates that BNPL user demographics often correlate with younger, less educated consumers experiencing higher debt levels and delinquency rates. In Kazakhstan, the ongoing high inflation, exacerbated by the COVID-19 pandemic and geopolitical tensions, complicates the economic landscape, suggesting a possible inflation-BNPL feedback loop that could jeopardize both consumers and providers.
Recent insights from Richard Wray of Carta Worldwide underline that while high-interest rates can lead consumers towards BNPL due to attractive interest-free periods, they also impose constraints on BNPL providers. An environment of rising borrowing costs coupled with declining consumer spending may adversely affect profitability in this sector.
In response to these pressing issues, Kazakhstan’s financial regulators are collaborating with competition authorities to lower prices for cash payments and uphold limits on retail lending rates, yet a definitive regulatory framework for BNPL remains elusive at this stage.
The rise of buy-now-pay-later schemes in Kazakhstan presents both opportunities and challenges. While BNPL provides immediate benefits to consumers, it raises significant concerns regarding inflation and household debt. Regulatory oversight appears necessary to protect consumers and stabilize the financial market. The ongoing collaboration between financial regulators and competition authorities will be crucial in addressing these issues in Kazakhstan’s rapidly evolving economic landscape.
Original Source: www.intellinews.com
