Based on the provisions of the draft regulation that is being consulted with the parties involved, a non-bank financial institution will not be allowed to grant at the same time more than two consumer loans to the same borrower.

The draft regulation also establishes a ceiling value of the loan installments about the net monthly income of the borrowers. The debt service ratio against income (DSTI) will be calculated as the value of the total monthly installments of existing loans, including the loan for which it is being applied, divided by the net income of all co-borrowers.

The value of the debt service ratio against income should not exceed the value of 40%. This value can be higher only in cases where the borrower has sufficient evidence that the higher level of the ratio does not affect the payment of the loan obligations.

These cases will be treated as exceptional cases, which should not exceed 10% of the amount of new loans granted by the entity for a calendar year.

The financial institution, in calculating the income to assess the solvency of the consumer, considers his income based on the data of at least the last six months before the moment of performing the financial analysis. In the case of expected income, the increase in income will be considered only when there is written evidence.

The draft regulation also provides for more detailed and rigorous risk management requirements for consumer lending. The financial institution, before concluding a loan contract and during the process of monitoring the loan in its duration, must assess the solvency and risk profile of the borrower, based on sufficient, accurate, and up-to-date data.

The new requirements, which envisage a detailed assessment of the ability to pay, are expected to make it very difficult to grant loans with only an identity document within very fast time frames (within a few minutes), a practice that is widely followed by some consumer microfinance institutions.

Coercive measures for granting consumer loans will affect only non-bank financial institutions, while so far there is no information that the Bank of Albania will undertake similar coercion for consumer loans granted by commercial banks.

If approved, the new regulation is expected to primarily hit the payday loan business. Quick credit microfinance has developed rapidly after 2016, bringing to Albania business models previously implemented in the Baltic countries and other Eastern European countries. These loans are generally given in small amounts and with short maturities.

Their advantage consists of quick decision-making and bureaucratic procedures, but, on the other hand, they carry greater risks and effective rates of very high interest rates than the loans offered by the banking sector.

These products are mainly oriented towards the segment of consumers with informality and with higher risk, having difficulty finding access to financing from the sector banking.