 RUSSIA IN FACTS |
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Bank Slates $1Bln Loan For Small Businesses
Vneshtorgbank will lend small and medium-sized businesses $1 billion this year, bank head Andrei Kostin said after a
meeting with President Vladimir Putin last week.
No Russian commercial bank currently has a small-business lending program, though there are a few banks that lend to
small companies through funds provided by the European Bank for Reconstruction and Development.
Putin has called the small-business sector a top priority, but efforts to reform relevant legislation have done
little to boost statistics.
Small and medium-sized enterprises account for less than 15 percent of gross domestic product, according to the State
Statistics Committee. In the European Union that figure is close to 60 percent.
If Vneshtorgbank makes good on its promise to lend out $1 billion, it would constitute the largest investment by a
single organization in the direction of small-business reform.
One of the main reasons that the Russian small-business sector has not flourished is because it lacks infrastructure
readily available in the West, such as lending institutions, according to a recent study by the World Institute for
Development Economic Research, a United Nations-sponsored think tank.
Russia's banks have traditionally catered to small groups of industrialists, living off a lending portfolio of
two or three high-volume clients.
Lending programs for private individuals and small companies require the creation of an expensive retail network and
more personnel for branch offices.
"Vneshtorgbank is a relatively new player on the small- and medium-business crediting market," said
Vladimir Osmolovsky, head of the company's department of client marketing and economic analysis.
"For this reason the bank is actively pushing ahead with developing new credit programs [for small
businesses]."
Vneshtorgbank said it would increase its presence in the Moscow area to 45 branch offices by the end of the year and
to 120 by the end of 2005.
It currently has 95 offices outside Moscow.
"The small-business credit risks of $1 billion that the bank is taking upon itself in 2004 is an unprecedented
amount for Russian banks," Osmolovsky said. "We will decide whether to increase this sum after the program has
been finished."
Last year the EBRD Small Business Fund gave two Omsk brothers, who produced ice cream, its billionth dollar in credit
after having operated on the Russian market since 1994.
The EBRD fund considers it important that small businesses are financed through banks instead of donor organizations,
so that a normal banking culture develops in Russia.
But credit in Russia doesn't come cheap. Interest rates will be similar to those offered to private individuals,
Osmolovsky said. In Russia those rates hover between 12 percent to 15 percent for dollar loans, compared to U.S.
interest rates in the lower single digits.
"If you want to do it, you can hand out $1 billion pretty fast," Nadia Cherkasova, deputy director of
business development at KMB-Bank, which lends to small businesses through the EBRD fund, told Izvestia.
"If you say you're lending to small businesses and then hand out $100,000 a pop, then this is
possible," she said.
An average KMB-Bank small-business loan is around $7,000.
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