Naubet Bisenov in Almaty -

A Wonga-style online payday lender has opened up shop in oil-rich Kazakhstan to cater to the aspirational middle class looking for cash to fuel their rampant consumerism. With the country's commercial banks having been badly burnt by the credit crunch that resulted in a lot of loans going bad, the first online payday lender in Kazakhstan is set to fill a huge gap in the market.

Kredit24 started operations on May 12 and has already proven popular with the country's netizens looking for a payday loan. "This project is innovative because there was no such service in Kazakhstan until now," Aleksey Sidorov, co-founder of the company, tells bne in his first media interview since the launch of the website. "We are the first Kazakh company to do this."

The payday lender offers first-time loans ranging from between KZT10,000 and KZT30,000 ($55-165) with interest rates of up to 2.5% a day for five to 30 days, Sidorov explains. The interest rate will fall for bona fide customers with every next loan, while the size of the loan possible will gradually increase, reaching $440 after the fifth loan, he says. The average monthly salary in Kazakhstan is about $640. "People who use this service, as a rule, value the convenience and speed of obtaining a loan, and they save a lot of time," he says, noting the cumbersome bureaucracy now involved in obtaining a loan from the commercial banks.

Kredit24 is targeting customers who either "don't want" or "aren't able" to go to a bank for a loan because they don't meet the new, more stringent requirements. "This means they are a high-risk segment and the level of defaults on loans issued by payday lenders is higher," Sidorov says. "This is one of the reasons for a higher interest rate because the risks are factored into the interest rate."

Kazakhstan's banking legislation bans financial institutions from setting interest rates on loans at more than 56%, which is expected to be reduced further in the future. For Kredit24 to charge the higher interest, it operates not as a financial institution but as a limited liability partnership whose loaning activity is not regulated by the National Bank of Kazakhstan.

The share of non-performing loans (NPL) at Kazakh banks stood at 32% in January, with the ratio reaching as high as 51% at Alliance Bank and 87% at BTA Bank. In February President Nursultan Nazarbayev ordered the government and the National Bank of Kazakhstan to get the ratio down to 15% by 2015 and to 10% by 2016, though he admitted in April that a cultural change is needed to get Kazakhs into the habit of paying back their debts on time. "Our people haven't yet learnt that loans should be paid back," he said.

However, Nazarbayev also wants his country's citizens to keep spending. At the height of the financial crisis in 2008, he urged Kazakhs to spend more, especially on property and domestically assembled cars, to help stimulate economic growth. Kazakhs "should not wait and keep money in socks," Nazarbayev said.

Such appeals to profligacy has encouraged global luxury brands to flock to Kazakhstan to try to tap into the newfound oil wealth. Bentley, Maserati and Louis Vuitton have opened Central Asia's only outlets in the country's commercial capital, Almaty. So has the US department store Fifth Avenue Saks, which sells a pair of Jimmy Choo shoes for several hundred dollars to designer-obsessed Kazakhs.

Borrow around the clock

Sidorov, a former banker with 12 years experience, says he first had the idea of offering online payday loans last year and it has taken him five months to find a local investor and start the project. "We are a purely Kazakh company and we are proud of creating a product which is advanced by successful companies in the West," he notes.

This is not his first dotcom start-up: for five years he has been running the successful prodengi.kz website devoted to banks and the financial sector, and the cpc.kz website which offers online advertising services.

Kredit24, which employs eight full-time employees and about 20 freelancers at the moment, is currently operating during normal business hours, but it plans to work round the clock. The website attracted 1,500 unique users in four days and received about 30 applications a day. It is now issuing about five loans a day on average. "We are now testing our business model in real time based on real applications," Sidorov says.

He explains that two major factors have played a crucial role in the timing of the project: the level of penetration of the internet and bank cards. He notes that today there are 9m internet users and over 13m bank cards in Kazakhstan. "The critical mass has been achieved for an online business to be feasible," Sidorov says.

A preliminary analysis conducted by the company shows that applications for and queries about payday loans have been submitted from all over Kazakhstan, including rural areas, which backs the company's expectations of high demand for its services. Sidorov says the Kazakh payday loan market has great growth prospects and compares it to tiny Latvia where about 20 payday lenders serve a population of 2m people. The businessman expects Kredit24 to operate in full swing over the next year, with its loan portfolio reaching a target of $1m. 

Another important reason for people seeking payday loans is the "public humiliation" they experience when they are denied a loan by the banks. "The main principle of our work is transparency, which is to show people how much they will get and how much they will have to return," Sidorov says.

The company scores potential clients' creditworthiness based on information in their applications and in order to establish their identity the company staff call work and mobile telephone numbers provided to verify the information. Within an hour of the submission of an application during business hours, the company notifies potential clients that their applications are accepted for processing and issues a loan to creditworthy applicants within the next two hours.

Sidorov says the company is now undergoing the procedure of technical compliance for accessing credit histories of potential clients in credit bureau databases and hopes this process will be completed within the next month. However, in contrast to banks, Kredit24 will not be able to access detailed information, but will only see a credit seeker's score given by credit bureaus.

Asked whether he is aware of the bad press the UK's payday lender Wonga receives, Sidorov says that negative publicity stems from the "misunderstanding" of its work and that his company will also face the challenge of explaining to the Kazakh public that payday lenders "are not a source of social problems". "I believe the sums people borrow from us or Wonga are small, which means they don't inflict a serious damage on the material wellbeing of a person or family," he says. "It's not a mortgage people get bogged down with for 20 years. It's not that significant a debt."

"I'm not embarrassed of parallels drawn between my company and Wonga. Moreover, I have respect for the founders of it for their project," he says, adding that he would like to learn from Wonga's experiences in the UK market.

Kredit24 shares Kazakhstan's embryonic payday loan market with the local branch of Russia's moneyman.ru, which arrived earlier this year. However, Sidorov doesn't consider it as a rival but a partner, because both companies offer a new product on the Kazakh market. "It's important for them and us to promote the new product, which is why both they and we put certain effort and money into popularising this product," Sidorov says.

He expects more payday lenders to emerge in Kazakhstan because of the "relatively low entry barriers" to the market, though his is confident about his company's ability to compete. "We can successfully compete against them because we know and understand this market better. We are local and our understanding of the local mentality is our advantage," he says.