According to the European Bank for Reconstruction and Development (EBRD), up to USD 10 million will be provided to Russia’s SKB Bank in order to provide loans for small and medium-sized businesses/enterprises (SMEs) in the Urals. The EBRD’s four-year loan provides additional funding for the Russian banking sector as part of the EBRD’s response to the global credit crisis. Terms of the funding to Russia’s SKB Bank are not provided.
SKB-Bank was established in November 1990 and serves Russia’s Sverdlovsk region with an extended regional network and a strategic focus on lending to small businesses (SMEs) and the retail sector. The majority of SKB-Bank’s client base is small businesses which do not have access to longer-term funding. The bank’s corporate services include the following: SME lending, wage projects, foreign exchange, international settlements, leasing, remote banking, and project finance. SKB-Bank opened new offices and branches with 23 new divisions in 2007. The Middle Urals is one of the largest networks that includes 50 offices in 23 cities and towns of Sverdlovskaya Oblast, a federal subject of Russia.
In May 2007 the EBRD acquired a stake of over 25 percent in SKB-Bank valued at USD 28.7 million (RUB 900 million). EBRD’s total commitments to SKB-Bank are presently valued at USD 90 million (including the 25 percent stake in SKB-Bank). SKB Bank is controlled by Dmitry Pumpyanskiy, beneficial majority owner of leading metal pipes producer, TMK. In addition, EBRD is currently represented on SKB-Bank’s board of directors.
Russia’s small and medium-sized businesses/enterprises (SMEs) employ about 25 percent of the workforce for the country. According to a study conducted by the Financial Services Volunteer Corps (FSVC) and the U.S. Russian Center for Entrepreneurship, the number of Russian SMEs has exceeded 1.5 million with the majority of these being small companies with an annual turnover of less than USD 2.5 million.
Furthermore, the SME lending market in Russia is expected to grow by 70 percent – 100 percent per year with expected volumes to double by 2010. Also, the market potential for SME lending in Russia is estimated to be USD 30 billion – 40 billion. Only a third of lending demand has been met. Microloans from institutions such as SKB Bank can potentially spur spending for productive usage and strengthen demand. Rural areas outside of central Russia, specifically in the Urals, have banking penetration rates that are significantly lower with access to finance and loans being very limited due to barriers to securing financing from banks. For example, SMEs that participated in the FSVC report noted the following barriers to securing financing from banks in Russia:
· Micro business owners indicated need of start-up financing which is not available from banks. While most bank policies allow lending to younger SMEs (in business from 6 months to a year), the financial requirements make it hard to obtain the loan.
· Most banks require collateral (specifically restricted to real estate, equipment, or vehicles) which limits the ability of SMEs to borrow against inventory or other assets such as Account Receivable. Interestingly enough, SMEs in the service industry have encountered difficulty to secure bank financing due to the lack of collateral requirements mentioned above.
· Banks require strong cash flow from business operations to support loan repayment. SMEs perceive tax rates to be prohibitive; thus, many SMEs have resorted to “shadow accounting,” making it difficult for the respective bank to determine the SME’s true financial strength.
· The amount of money that SMEs can borrow is restricted due to high loan repayments amounts and short loan terms of less three years.
· SMEs have indicated that in the absence of bank financing, they rely on “supplier’s credit,” that is typically interest free.
· While interest rates charged by banks were typically high, many SMEs agree that the funding was worthwhile given the lack of alternatives.
· Although SMEs could afford larger loan repayments, banks tended to be conservative and lend smaller amounts. In one case an SME had indicated that it had obtained 3-4 loans at USD 10,000 each since no one bank would lend more that that amount.
The European Bank for Reconstruction and Development (EBRD), a multilateral development institution that fosters private sector investment in 27 countries in Central Europe and Central Asia, has supported the microfinance sector through its Micro, Small and Medium Business Program since its establishment in 1991. In the last two years alone, EBRD has provided over USD 1 billion – through debt, equity facilities and technical assistance – to microfinance programs throughout the region.
MicroCapital recently reported that the EBRD has established several financial sector framework facilities to improve operational efficiency in the provision of products and increase the amount of financing available to partner financial institutions. The US/EBRD SME Finance Facility and the EU/EBRD SME Finance Facility provide financing for financial intermediaries throughout the region, while other frameworks focus on particular countries or regions.
EBRD supports existing financial intermediaries for micro and small enterprise (MSE) lending in the region, and establishes “greenfield” microfinance banks, by providing finance and building capacity. Since its inception, EBRD has supported over 100 financial institutions to facilitate over EUR 17 billion (USD 22.7 billion) in loans to MSEs in 19 countries.
In addition, the Russia Small Business Fund, established in 1994 with pledges from EBRD and donor countries, was the Bank’s first initiative in MSE finance, and the model has since been replicated in many of EBRD’s countries of operation. One of the oldest participants in the program, NBD Bank, raised its first purely international syndicated loan in December 2007, with USD 5 million from EBRD.
In March, 2009 the EBRD provided a five-year loan of up to USD 35 million to Center-Invest Bank to provide funding to support lending to SMEs (Center-Invest Bank’s core client base). According to the EBRD, the loan is “being advanced under its USD 15.9 million (€500 million) Multi-Product Framework for Medium-Sized Russian Banks, set up in 2008. Seven Russian banks received support totaling USD 5.8 million (€182 million) under this EBRD facility last year.” Additional projects, primarily involving equity or quasi-equity, are in the 2009 EBRD pipeline.
By Zoran Stanisljevic
Additional Resources:
European Bank for Reconstruction and Development (EBRD), April 2009: EBRD lends Russia’s SKB-Bank up to $10 million to fund small businesses in the Urals
European Bank for Reconstruction and Development (EBRD), March 2009: EBRD in $35 million loan to Russia’s Center-Invest Bank
Financial Services Volunteer Corps, June 2008: Russian Banking and SME Lending: Assessment of Obstacle to SME Finance in Russia
MicroCapital Story, May 2009: European Development Finance Institutions Part 1: European Bank for Reconstruction and Development (EBRD) Invests Over USD 1 Billion in Microfinance Initiatives Since 2007
EBRD: Homepage
SKB-Bank: Homepage
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