A key change has been the introduction of a legislative cap on loan costs. In May 2024, amendments were made to the Law of the Kyrgyz Republic "On Pawnshop Activities," which established a ceiling for the annual effective interest rate (AEIR). Now, the rate is calculated using the formula: the weighted average nominal rate of the National Bank of Kyrgyzstan (NBKR) plus 12%. According to the regulator, this innovation has limited the issuance of loans to around 30% per annum, putting an end to the practice where some market participants set rates in the range of 100-300% per annum.
Additionally, the requirements for transparency in loan conditions have been tightened. Pawnshops are required to provide clients with complete and clear information about interest rates, terms, and the procedure for calculating interest before signing the contract. It is also emphasized that hidden fees, which could "surface" after the client comes to redeem the collateral, are unacceptable.
Another important aspect has been the data of borrowers. As stated in the press release, the regulator has restricted the transfer of information about loans and borrowers to credit bureaus. This is done to protect personal data and prevent the deterioration of credit histories due to short-term loans from pawnshops. The Cabinet of Ministers also supported this initiative by adopting Resolution No. 671 on November 6, 2024, which prohibits the transfer of data to credit bureaus if the loan amount does not exceed 200,000 soms.
According to the State Financial Supervision, the main goal of the reforms is not to create additional restrictions but to increase transparency in the market: borrowers should understand the cost of the loan in advance, and the terms should not come as a surprise. This is expected to lead to a reduction in the number of conflicts related to charges, fees, and the return of collateral, which is one of the regulator's priority areas of focus.
