The Alternative Financial Services Association of North Macedonia
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Interview with Jana Nikodinovska, AFD Secretary General for Responsible lending and financial inclusion remain top priorities for non-banking financial companies

  1. The National Bank of North Macedonia recently published the report on financial stability for 2019, that shows the growth of non-banking financial companies in almost all parameters, emphasizing their role as an institution that ensures financial inclusion of the non-performing population. What is your opinion on the topic?

The report of the National bank only confirmed exactly what we said in the past, which in fact is due to the continuous growth of the segment of non-banking financial companies. According to the report, “Financial companies are the youngest and most dynamic segment of the financial system of North Macedonia, which with their lending activity provide higher levels of financial involvement for certain categories of physical persons and legal entities with more difficult access to loans of deposit financial institutions. Although financial companies have been working in the credit market for almost ten years, they are still among the highest growth rates, and the interest in establishing new financial companies in recent years is quite high”.

The non-banking financial sector in North Macedonia grew rapidly, but still has a small share in the total assets of the financial system, as well as in the total credits portfolio, which is evidenced by the data of 0.60% share in the total financial assets, ie 67 million euros (according to the latest financial stability report published by the NBRM for 2019). The dominant position in the financial sector in our country is still held by traditional financial institutions with 81.7% share in the total assets of the financial system.

The non-banking financial sector, although small, still does not have a negligible impact on the Macedonian economy. The non-banking financial companies have invested over 14 million euros in the economy and employ over 1,000 people, mostly young and capable staff. The analyzes we make within the Association of financial companies (AFD) on the impact of the industry of the non-banking financial institutions (NBFIs) on the economy, show that this sector annually, calculated for 2019, spends about 13 million euros, and this includes all material costs, service costs, staff and public duties, while the NBFI’s share of the state budget is € 2 million on an annual basis.

However, as in most industries, these figures will look very different this year due to the situation with Covid-19, which will substantially confirm what we as an Association have said in the past – that the sector is vulnerable and it is illusory to compare it with other financial institutions.

  1. How has the Covid-19 crisis affected your sector and how do you view this post-Covid sector?

The economic crisis caused by the health crisis of the Covid-19 pandemic did not pass the sector of non-banking financial companies neither, as well as other sectors in the economy. Due to the coronavirus situation, financial companies face difficulties in maintaining liquidity and servicing operating costs, so in that sense they undertake activities to rationalize operating costs, taking into account the inevitable reduced payment discipline and limited access to finance, in our country and in the European markets, which to some level it can be said it puts them as the second most affected industry under the influence of Covid-19. Many will ask why? In conditions of global financial crisis, our sources of financing are stopped or limited, which further complicates the situation for financing business work. Non-banking financial companies, unlike the traditional financial institutions do not have deposits and cheap sources of financing, on the contrary, non-banking financial companies are financed from own funds and other sources with higher financing costs, which is approximately 15%.

Due to that, most of the financial companies were not able to place new loans, and due to the limited and expensive sources of financing, the interest for borrowing slows down due to the non-competitiveness of the offers, and all that only harms the citizens because the access to funding needed right now is being limited. Last year, our industry saw rapid growth in non-bank consumer loans, which reflected market movements and the need for access to finance, and in that sense financial companies accounted for much of the financial burden in the country by providing access to finance for physical persons and small companies, who do not have access to bank loans.

Given the recent history, the period from the beginning of the pandemic to the present day, as McKinesey & Company points out, Covid-19 has dealt a significant blow to a number of industries, only confirming that the FinTech industry is vulnerable to changes that could put it on the edge of sustainability. On the move are regulators who, first of all, must consider these challenges as a historic moment in the adoption of regulations that affect the industry, anticipating at the same time the recovery time from the current situation.

The need for financial services has always existed and will exist. After all, the Fintech industry emerged at the very moment when the various needs for alternative and advanced ways of financing arose. Whether it is a state of economic crisis, when the population needs access to funds that they can not obtain otherwise, as is the case with the non-banking financial companies, or access and management of financial services through advanced technologies which led to the birth of new industries based on financial technology.

Special emphasis throughout the overall evolution of the financial system of the future, especially post-Covid, is the responsibility of the stakeholders. Of course, responsible lending to all stakeholders, both supply and demand, will play a key role in the relationship between the two parties. This is something that AFD and its members have been advocating and promoting since the first day of its establishment, and that is why we put the responsibility above all in all our business operations. Now, as never before, building partnerships and trust with customers is important, where the focus that FinTech companies have is now emerging – and that is complete adaptability and focus on the customer and his needs.

There is always room for improvement, of course, with all the spotlight now on increasing financial education efforts, which, in turn, will increase the use of financial services offered by all financial institutions.

  1. The most endangered industries from the corona crisis received some financial support from the state, is there support for the development of the non-banking financial sector?

Under the circumstances, the end of the global health crisis is being monitored, or at least brought under control by the discovery of a corona vaccine, but there remains an economic crisis, the effects of which we are yet to feel. The current assistance to the endangered sectors is a temporary injection to keep these sectors alive and is commendable. But what we consider necessary now is a strategic approach, damage assessment and a support plan for the entire economy facing liquidity problems. Focused support in these industries will contribute to a smoother overcoming of the period, amortizing additional negative economic effects such as layoffs, reduced taxes, etc., which will allow them to be one of the key players in the faster recovery of the overall economy.

This includes the non-banking financial companies that are holders of the FinTech industry in our country, which although have a modest share in the total financial resources of the financial system, are an important factor that can offer support to the economy and population in the coming period. Non-bank financial companies have provided and, most importantly, will continue to provide access to finance for citizens and small businesses who have difficulty accessing funds in any other way, very quickly and easily, online or through a branch office, when it is most needed, which directly affects the quality of life of service users.

To conclude, non-banking financial companies can and remain to help the population to overcome this crisis period, as pointed out by experts and international financial institutions, but to achieve this, the support of the sector is necessary because as previously mentioned, the non-banking financial companies currently do not have the capacity to place funds in the amount they need and will need the population in the next period of time.

  1. What are your expectations from the new Government of the Republic of North Macedonia regarding the FinTech industry?

We expect this Government to give a fresh impetus to support the development of technology-based financial services, ie to support the development not only of the FinTech industry, but also of the entire Macedonian economy because it is crucial for the survival of our economy in these exceptionally difficult circumstances of a global economic crisis of this magnitude.

We expect the complete regulatory framework in our sector to be completed, here I especially mean the regulation which is in the final stage, in order to create legal preconditions for further development of the FinTech industry in a regulated and controlled conditions. We expect the new law governing payment services and financial companies to be on the list of payment operations carriers. We are continuously working with the regulator and the competent institutions with our proposals for improving the legal framework. In that context, we expect improvements in tax regulations, especially in terms of impairment of non-performing loans, in order for financial companies to receive the same tax treatment as traditional financial institutions.

Creating favorable conditions for the development of our industry is crucial, especially considering that in addition to the ease of access to financial services provided by non-banking financial companies, they also provide access to financial services for part of the population that does not have access to the traditional financial services, ie financial inclusion of all parts of the population in North Macedonia. This only adds to the significance in the context of efforts to revive the economy and help the population as a result of the economic crisis from the Covid-19 pandemic.