Developmentof the Microfinance system in Russia

of the Microfinance system in Russia Anna Kaganova National Business Incubation Association Russian Federation anna_kaganova@mail.ru... Microfinancial Institutes• convinient and especia

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

Microfinancial Institutes

• convinient and especially attractive for entrepreneurs

• represent a flexible form of a classical banking credit

• permit to set up the business without start-up capital and credit history

Basic conditions of Microfinance

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

 TTotal first credit sum fluctuates between $ 500 – 1000 USD

 TTerm 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

Commercial Banks

Microfinancing Institutes

Credit Unions

Agriculture/country credit cooperatives

State Funds (Regional Funds) for support of small entrepreneurship

International Microfinance Programs

program of Russian Women’s Microfinance Chain,

supported by Ford’s Fund

Opportunity International

FINCA International

USAID programs ACDI/VOCA

Rules and Legislation/Taxation

not determined radically:

composition and the

special rules, providing

financial stability and

borrower’s protection

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

than banks

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

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

SMEs meet depositors directly

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 and adaptation;

 - Information support of Russia – APEC

SMEs business contacts;

 Special “APEC-oriented” SME staff

training;

 Joint projects consulting support; and

 Partner search

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