Kazakhstan is caught in a vicious cycle of debt. The pandemic has only made it worse
A culture of credit was nurtured for years in the Central Asian state, but now many left jobless by the pandemic rely on loans to pay other debts
Since the beginning of the global pandemic, Kazakhstanis who are heavily reliant on loans have plunged even deeper into debt.
For many citizens of this Central Asian state, they have turned to loans in an attempt to help offset uneven income growth over the past decade – to fulfil basic consumer needs, but also to pay for healthcare and property.
But during 2020 and this year, for many people, loans temporarily replaced wages. Many businesses and institutions were forced to suspend operations after the government announced a lockdown in March last year. The situation remained uncertain. Lockdowns were introduced and relaxed unpredictably by the authorities of the larger cities. This unstable situation meant businesses and institutions could not resume work, and as a result, many people have faced declining incomes or have lost their jobs.
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Credit after credit
Until the end of 2019, Aigul’s family had not fallen behind on loan payments. She used to work in a bank, while her husband was employed by a construction company. They took out several consumer loans for medical treatment, electronics and other household items, being fully confident that they would be able to pay them back without any problems.
The family did not have enough savings to make sizable purchases, so there was no alternative to taking out loans.
"In order to make payments on loans, we sold everything of value that we had. Then I had to take out other loans to pay off the previous loans"
When the pandemic began, their debt reached three million tenge ($7,600-$7,800), and just at that moment Aigul was fired from her job, and her husband was forced to take a lengthy period of sick leave after fracturing his heel.
“I did not expect that we would collapse so quickly and be left without work,” Aigul explained. “In order to make payments on loans, we sold everything of value that we had. Then I had to take out other loans to pay off the previous loans. We could not sit and wait for someone to help pay off the monthly payment. My relatives also have their own loans.”
Aigul and her husband had to use some of the money they had borrowed to buy food throughout the year. Today, they have three loans with total monthly payments of 250,000 tenge ($585).
Recently, Aigul managed to get another job, but the wage she received was substantially less than what was originally promised.
From time to time, she has to sell their belongings to make repayments to the banks. Aigul’s health has worsened as a result of the financial strain, and her condition hasn’t improved.
She does not know who could help her in the current circumstances: Aigul and her family have little hope that the Kazakhstani government will help.
How did the debt problem appear?
Kazakhstan is far from the only country whose citizens have found themselves in a debt trap. Over the past 50 years, loans have helped smooth out stagnant incomes for people in the West, too.
After the Second World War, the US and the leading states of Europe began to pursue a socially oriented policy, providing people with basic services, hoping to reduce the discontent that sparked several revolutions at the dawn of the 20th century. But in the 1970s, the growing demands of the masses led to skyrocketing inflation.
National governments found their way out of the situation via austerity measures and curbing inflation. The policy change almost immediately led to a decline or stagnation in incomes, which continues to this day. To compensate for falling living standards, Western governments have tried to deregulate their financial sectors. Authorities promised to enrich people by turning the wealthiest of them into users of investment products. For the less fortunate, they suggested maintaining purchasing power through flexible forms of lending. In the late 1990s, then, finance began to penetrate all spheres of life in Western countries. Often, loans provided people with the only opportunity to meet their basic needs for food, medicine and housing.
This trend was delayed in Kazakhstan. The widespread use of retail lending services began only towards the mid-2010s, following a sharp drop in oil prices, which led to national currency devaluation in several stages.
These forms of credit were intended to compensate weak wage growth – a result of the creeping devaluation of the national currency and the growing cost of imported goods
Since then, the volume of loans to individuals in the country has more than doubled, reaching 6.6 trillion tenge (more than $17bn) by the end of 2019. During this time, microloans, interest-free loans, instalment plans for the purchase of various goods and services have become widespread. These forms of credit were intended to compensate weak wage growth – a result of the creeping devaluation of the tenge and growing cost of imported goods, which occupy a significant share in the consumer basket of Kazakhstanis.
These services were provided by international financial institutions such as Citi, Dutch banking group ABN AMRO and HSBC, which actively entered the Kazakhstani market in the late 1990s. Local players quickly adopted their approaches and lending instruments, transferring them from the premium segment to the middle segment of clients.
In addition to mortgages, the most popular retail product during the 2000s was credit cards. However, the growth of nonpayments through this channel and the loss of sources of cheap funding in the West after the 2008 financial crisis prompted banks to switch to expensive retail lending and servicing the wealthy category of clients.
Lending to eradicate poverty?
Microfinance organisations began to develop in response, especially with the popularisation of Nobel Peace Prize laureate and Bangladeshi banker Muhammad Yunus, who since the 1980s has promoted lending as a way of eradicating poverty – and who regularly attended the Astana Economic Forum in Kazakhstan.
As the non-resource sectors of Kazakhstan’s economy slowed down and the cost of domestic financing rose, banks also began to switch to more active retail lending. This coincided with the digitalisation of the country’s credit industry, which meant loans became flexible to an unprecedented degree.
Suddenly, almost all goods and services could be purchased via an interest-free instalment plan or a fully fledged loan.
In mid-2019, immediately after the presidential elections, Kazakhstan’s then newly elected president Kassym-Jomart Tokayev decided to hold a credit amnesty for those citizens whose debts did not exceed three million tenge ($7,600-7,800). The effect of this measure turned out to be limited, since it was initially aimed at socially vulnerable segments of society.
Other groups of citizens received no assistance, although their situation was becoming equally vulnerable.
"I promised myself that I would get work, whatever the cost, so I took on three jobs at once"
About four years ago, Marat, a lawyer by training, lost his job. “I was depressed, I did not know what to do and how to make money,” he explained. “With work [it became] difficult, it was impossible to get a job according to my skills. And then, even if you get a job somewhere, you will receive 150,000 tenge [$240-$350], which is not enough to buy anything.”
For some time, Marat got by with odd jobs, at one point moonlighting as a plumber. But from May to November 2020, amid the chaos of the global pandemic, he could not do anything. To compound the situation, he developed anxietyand suffered panic attacks due to a lack of money and the death of his mother.
“In November , in order to get out of my financial difficulties, I decided to look for a job even with this anxiety. I pulled myself together, worked on myself and promised myself that I would now get a job, whatever the cost,” Marat said.
Working morning, noon and night
Marat was hired as a pizza-delivery driver, but after a few months began working at Yandex.Taxi as well (from 6am to noon) and another delivery service (from lunch to late evening).
By that time, it was impossible even to find a job without taking on more loans. This was because to carry out his duties, Marat needed to buy a new car, and this could only be done on credit. Now, for the next seven years, he will give the bank 100,000 tenge ($240) every month on a monthly income of 300,000-350,000 tenge ($700-$820).
Marat is a father of two children. His family lives in a rented apartment. And while they would like to buy their own home, they cannot afford it. “In total, if you count it all up, [every month I have to pay] 100,000 tenge for the car ($240) and 120,000 ($280) for the apartment,” he explained. “And you also need to buy food that is constantly becoming more expensive, and clothes for the children.
“My income is not enough for this, but you work like a beast every day in order to earn at least something [and pay off your loans].”
Marat notes that many drivers and couriers with whom he is familiar are in the same position. Most of them pay loans for their vehicles, working from morning until late at night, and sometimes even on the night shift.
How the pandemic made Kazakhstan’s debt problem worse
During the pandemic, Kazakhstanis who lost their jobs or most of their earnings continued to take loans in order to feed themselves, pay for treatment or close existing loans. In 2020, the loan portfolio of individuals increased by 500 billion tenge (almost $1.2bn) in Kazakhstan, despite the more than 2.6% decline in the nation’s GDP.
Today, according to one credit bureau, First Credit, 7.1 million out of 9 million economically active Kazakhstanis have loans. For each citizen of Kazakhstan, according to various sources, on average there are from 900,000 to one million tenge of loans ($2,100-$2,300). Every year 400,000-500,000 new clients apply for loans, while the average amount borrowed annually is 300,000 tenge ($700).
A second credit amnesty was one of the main demands made at a major public demonstration after lockdown. This was organised by the unregistered Democratic Party of Kazakhstan. Its leader Janbolat Mamai reported that about 100,000 signatures had been collected calling for a credit amnesty.
"During the lockdown, many people lost their jobs and found themselves in a very difficult financial situation"
“Mostly people took out loans for medical needs. Sometimes for education. Often these are small consumer loans, for 300,000-350,000 tenge [$700-$820]. But people could not even pay those off because during the lockdown, many people lost their jobs and found themselves in a very difficult financial situation,” said Mamai.
People are pushed to borrow money for healthcare and education because of the state’s poor social policy. Kazakhstan offers free schooling, for example, but does not subsidise college and university tuition, with only a small number of grants.
The same applies to health insurance: citizens can receive only a minimum package of services for free, but for more serious treatments, it can be a huge outlay, even in state clinics. Despite renewed pleas from struggling Kazakhstanis for help with the credit burden, the government is not showing any willingness to address this growing financial malaise.
Citizens, however, continue to take to the streets, outraged by declining wages amid high inflation and currency devaluation. Since the end of 2020, strikes by workers in the raw materials, services and public sectors have become more frequent in several regions of Kazakhstan.
Incomes not enough to pay loans
By the end of May of this year, workers had held at least 35 to 40 protests across the country. The strikers feel the action is justified in spite of the risk of becoming unemployed. Emphasising the need to raise wages to increase, striking workers insist that their current incomes do not allow them to pay off loans or buy basic products.
Before lockdown, Asyl worked at the National Academy of Sciences. Since its inception, the institution began to experience difficulties – the state and other authorities suspended funding for various projects. This led Asyl to take up work as a delivery driver for an on-demand service. “Those people who left science are now engaged in other areas,” he said.
“The older ones left to work in restaurants [or] became technical personnel, because they are not taken anywhere else. Young people started working in delivery services. But this is [not only a recent situation]. If you meet any courier from Glovo, Wolt, Yandex or Chocofood [food delivery services], and ask where they worked before the pandemic, many will say they worked in normal places, with office jobs.”
Asyl found a new job pretty quickly, but soon his managers burdened him with extra transportation costs.
When he got the job, he had a motorcycle, which he decided to sell with the onset of winter. Instead, the courier decided to buy a car, for which he took out a loan.
"I had to take loans several more times and as a result I have six loans – this is in addition to other payments"
Having bought a car, Asyl began to use it every day and therefore he often had to repair it, change various components and oil. But one day the breakdown turned out to be more serious – he had to get the engine replaced. He couldn’t afford this on the salary he was on, so he had to take out another loan.
The repairs took a week, and during that time Asyl could not work. When the due date for the next loan repayment approached and money ran out, he was forced to take another loan.
“I work day and night, I work as a taxi driver in my free time, but I still don’t have enough money. I live in a rented apartment, I have to pay for the apartment, for utilities. Over a month, it costs about 110,000 tenge [$255] [to pay for everything]. I had to take loans several more times and as a result I have six loans – this is in addition to other payments,” explained the courier.
Asyl’s company recently cut wages and workers went on strike. After the decline in earnings, they could barely afford to buy food. Many of the couriers once again took out additional loans to pay off the previous ones.
Using banks and microfinance organisations, according to Asyl, is almost always the only way out. “Who else can I turn to? My relatives were almost all left without work; my mother is a pensioner, and my father died not so long ago,” he explained. “The state cannot help us in any way – now the state also has difficult circumstances.”
Individual recklessness blamed by media
Various Kazakhstani media commentators blame individuals’ financial recklessness for the current state of affairs, but when people take out loans, they are not following their own greed or desire to live “beyond their means”. They are trying to survive in an unstable economy that cannot provide them with income growth and job security.
After the collapse of the USSR, the financial industry began to promise people a rich life with an abundance of goods, if only they would start regularly using their services – and stop demanding a social policy from the state.
The Kazakhstani state itself constantly inspired people with stories about the imminent prosperity of the nation, once citizens’ efforts were concentrated not on changing the political structure of the country, but on achieving maximum economic growth.
Inspired by the period of high oil prices and a rapidly growing GDP, people were full of optimism, believing that the future had already arrived and they would easily cover all the costs of loans, which they were offered to compensate for low incomes.
However, no utopia happened. Over the past ten years, the economy of Kazakhstan has suffered many setbacks, all of which worsened socio-economic inequality and heightened the debt burden of its citizens.
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