Development of the Microfinance system in Russia

Anna Kaganova National Business Incubation Association Russian Federation anna_kaganova@mail.ru

Small business development in Russia

 SMEs have been existing for 12 years;  >5.6 millions (including 4.5 millions

of individual entrepreneurs);  90 % of the total number of establishments;  44 % of GDP;  45 % of employment.

Sources of financing Business partners, relatives or other people

Microfinancial Institutes

• convinient and especially attractive   for entrepreneurs • represent a flexible form of a classical    banking credit • permit to set up the business without    start­up capital and credit history

Commercial banks

Regional (State) Funds for Support of Small Entrepreneurship

Basic conditions of Microfinance

Interest rate is approximately 6-8 % per month in the first borrowing month with its further reduction to 3-4 % per month

Total first credit sum fluctuates between $ 500 – 1000 USD

Term of payment is till 3 months

More advantageous for small size borrowers than classical bank loans

Main objective of Microfinance

creation of a high dynamic and an effective financial system for SMEs for an additional stimulation of goods and services production and distribution, and also for a mutuality of start-up enterprises in the acquisition of getting profits and a capital accumulation experience

Main tasks of Microfinance

to stimulate efficiency access to the financial

resources;

to create work places; to grow of tax proceeds; to create a credit history for the further

development of SMEs through the bank sector; to barrier SMEs for their transition to the shady

sector of economics.

Why not a bank?

• lack of guarantees; • lack of credit history; • necessity in operating with a small sum of money ($ 500 – 1000 USD); • necessity in quick credit operating (for several days – week); • necessity in other forms of support and consulting; • existent distrust to banks.

Microfinancing Programs Position, summary (on Jan, 2003)

 Average monthly microloans interest credit rate – 6%  Average loan size – $400 USD  Average volume of credit on one client – $650 USD  Average percentage of a loan repayment – 95%  Loans distribution: • trade – 55%, • rendering of personal services – 24%, • farming – 11%.

 63% of all loans are given to beginner entrepreneurs Demand for Microloans is evaluated on $ 4.5 bln USA

Total quantity of MFIs in Russia - approx. 300 MFIs

Social Effect of MFIs

MFIs create new work places MFIs give an opportunity for economic development

for a lot of people in different Russian regions

MFIs usually work with economically unprotected entrepreneurs in regions and give them opportunities for economic development

More than 70% of program’s clients are women

Example: “Credits for Small Enterprises” microfinance program

 Credit sum is from $30 till $1000 USD

 Term for accepting the decision 1 day

 Interest rate is 4 % per month

 Guarantee conditions are 2 warranties

(husband/wife, business partner or relative)

Russian Microfinance System and Microfinancial Institutions

Credit Unions

Agriculture/country credit cooperatives

Microfinancing Institutes

Commercial Banks

State Funds (Regional Funds) for support of small entrepreneurship

International Microfinance Programs

ACDI/VOCA

Opportunity International

FINCA International

USAID programs

program of Russian Women’s Microfinance Chain, supported by Ford’s Fund

Rules and Legislation/Taxation

­

+ not determined radically:

composition and the structure of MFI’s authorized capital;

norms of accounting and supervision;

MFIs function in such tax conditions, which put them in less favorable conditions than banks

interest rates;

special rules, providing financial stability and borrower’s protection

Last achievements in the sphere of Microloans

In 2000-2002:

 banks increased the intensiveness and volumes of

the small business financing;

 reduced a minimal loan sum;

 began to use flexible credit interest rates and

simplified the procedure of application examination

and allowance of credits.

Last achievements in the sphere of Microloans (continued)

 November 1999: Informal “Working group on microfinance policy” was established.  2001: Agency of credit histories was established.  2001: New legislative rules were adopted. Under these rules incidence of taxation was reduced either on non-bank MFIs or on clients using given them loans.  Nowadays: Microfinance activity has become more mature. The models of successful operation of MFIs have been worked out, leading to the mature creation.

MFIs Development Perspectives

SMEs meet depositors directly

attracting resources from financial institutions

reinvestments

the National Business Incubator Association of Russia Founded in 1997 by 22 Russian business incubators and SME support institutions

65 active members in 2003

Our Projects

 APEC Cooperation Center – New Channel for the

NBIA of Russia International Networking;

 The ACC foundation initiated in 2002;

 Aims at facilitating Russian businesses’ development

through international cooperation and promotion, in the APEC region especially;

 Building Cooperative Networks between Business

Incubators in Russia

The ACC Principal Lines of Activities:

 - APEC SME support experience analysis

 - Information support of Russia – APEC

and adaptation;

 Special “APEC-oriented” SME staff training;  Joint projects consulting support; and  Partner search

SMEs business contacts;

Take part in the Conference

International Conference “Small and Big Business Interaction” Moscow, June 2004  to consolidate the efforts of entrepreneur community in the interests of entrepreneurship effective development;  to develop the cooperation between small and big businesses

Thanks for your attention!

www.nsbi.da.ru www.smb-support.org/nsbi anna_kaganova@mail.ru kaganov@smb-support.org