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Consumer lending boom and socially responsible crediting of households in the Russian Federation

Consumer lending boom and socially responsible crediting of households in the Russian Federation

Journal of Economic Regulation, , Vol. 4 (no. 3),
p. 121-131

The paper deals with the main features of the modern boom in consumer lending in Russia. The question under discussion is paid special attention in context of increasing risks both for households which obtain the credits and for financial credit system in whole. In Russia, 57% of consumers choose consumption as the key strategy of financial behavior under economic uncertainty. General purpose loans and credit card loans added together form the major part of consumer credits provided by Russian banks. Short-term loans and medium-term loans which imply high interest rates cause the monthly expenses to pay the household’s loan to be about 20% of household’s monthly income. Financial instability of households accompanied with inequality in income distribution, «conspicuous consumption», growth of loan debts, lack of official statistics and irrelevant monetarist policy may result in social instability of the country. The author focuses on the Financial Instability Hypothesis suggested by H. Minsky to prove that capitalist economy endogenously generates a financial structure prone to financial crises. Proceeding from H. Minsky’s classification, the proposition that the speculative finance units together with «Ponzi» borrowers are the largest categories of consumer loan borrowers is put forth in the article. Support of socially responsible crediting (i.e., educational credits; credits for reconstruction of residential premises to increase energy efficiency; credits for development of entrepreneurship, personal household plots, gardening, horticulture, and for establishing work-from-home conditions for households with low income levels) provided for hedge financing units are considered to be an effective measure of counter-cyclical regulation which can reduce risks of financial instability in modern Russia.

Keywords: credit; consumer lending; socially responsible crediting; counter-cyclical regulation; the purpose of the loan; credit expansion; household; development finance

Publisher: Ltd. "Humanitarian perspectives"
Founder: Southern Federal University
ISSN: 2078-5429