In Ukraine, there is a growing misunderstanding of the real cost of loans due to the fact that the real annual interest rate (RAR) sometimes reaches more than 3,600%. At first glance, this is a real shock for consumers who are used to seeing advertisements with the offer of “1% per day” and expecting about 365% per annum.
Sergiy Sinchenko, a financial expert and CEO of Moneyveo, wrote about this in his blog, explaining the reasons for this gap between customer expectations and official figures.
The main difficulty lies in the formula for calculating the PPI, approved by the National Bank Resolution No. 16. It is based on the XIRR method, a complex financial function that takes into account each payment, the date of its execution, and the reinvestment effect. As a result, even simple loans with an interest rate of 1% per day yield a formal rate of over 3,600% per annum.
“The formula is mathematically correct, but not easy for an average consumer to understand,” Sinchenko says. “It simulates compound interest, as if the lender reinvests every payment received. This makes the effective rate look gigantic, even though the client is actually paying a simple interest rate.”
The paradox is that companies that operate transparently, without hidden fees and additional charges, often have a higher APR due to an objective methodology. Meanwhile, companies with numerous small payments may show lower official rates, but the actual costs to customers are higher.
The expert suggests keeping the RRPS tool, but simplifying its presentation for consumers. In particular, he recommends using a more intuitive calculation for simple loans, which would reflect the percentage of total loan costs without complex capitalization.
Such changes will help make the lending market more transparent and understandable, increase customer confidence, and promote healthy competition.
Maniveo Emergency Financial Assistance LLC (TM Moneyveo) estimates its share in the online consumer lending market at 13-15% and plans to increase it by 1.5 percentage points (p.p.) this year, including by expanding into the small and medium-sized business (SMB) customer segment, the company’s CEO Sergey Sinchenko said.
“We are considering various strategies to achieve this goal, in particular expanding the customer segment, for example, at the expense of SMEs, increasing awareness of our products and services, as well as improving interaction with existing and potential customers,” he pointed out in comments to Interfax-Ukraine.
According to Sinchenko, Moneyveo’s strategic plans include expanding the range of services, improving customer service processes and developing marketing initiatives. Also, in order to improve cross-functional interaction within the company and involve employees more in decision-making, the lender plans to move from a functional management structure to a process approach, the CEO said.
“We are also focusing on optimizing operational efficiency, developing digital technologies and process automation, and improving personal data protection,” Sinchenko said.
He pointed out that Moneyveo made its last coupon payment in early February 2024 and fully redeemed its UAH100 million Series B bond issue in December 2021, after which its maturity was extended for another year in January 2023 with an increase in its interest rate from 18% to 26% per annum.
“Thus we have demonstrated our ability to effectively use financial instruments and fulfill financial obligations, which confirms our stability and reliability in the financial sphere,” commented Sinchenko.
The company considers the new bond issue as one of the tools to ensure further growth and expansion of its operations.
“The probability of its use will depend on the situation with the growth of activity, the competitive environment of the investment market. Now we are planning an issue in 2024 if the growth in issuance (of loans – IF-U) several months in a row will be at least 10%,” Sinchenko informed.
According to the NBU data, Maniveo Ambulance Financial Assistance LLC’s net revenue for 2023 amounted to UAH 1.30 billion, or 8th place in the market, net profit – UAH 2.66 million. The company’s assets at the end of last year amounted to UAH 600.37 million.
FINANCIAL AID, Fincompany, Moneyveo, online lending, Serhiy Sinchenko
