Prepared by the Russian Microfinance Center (RMC), an organization supporting microfinance institutions (MFIs) by providing knowledge management, policy advocacy, and technical services since July 2002, in cooperation with the Microfinance Information eXchange (MIX), released February 2008, 20 pages, available at http://www.microfinancegateway.org/files/48948_file_Microfi_nance_in_Russia___Benchmarks_and_Analysis_2006.pdf

This report presents the important performance characteristics of Russian microfinance from 2003 through 2006 and analyzes the sector by reviewing the Russian regulatory environment and by conducting extensive benchmarking against MFIs in Central Asia (CA), Central & Eastern Europe (C&EE), and the Caucasus. Conducting business in a country containing 11.5 percent of the world’s landmass and a population of only 142 million, Russia’s more than 2,000 MFIs have experienced steady growth in their loan portfolios of 20 percent annually on the aggregate. Moreover, industry-wide assets and loan portfolios grew by five times during the research period. However, Russia’s wide geographical area results in 27 percent of the population—whom live in rural areas—receiving a disproportionably inadequate amount of financial services.

One reason for the industry’s inability to reach maximum scale thusfar (45 percent of Russians had no bank account at the end of 2006) is the current regulatory framework in Russia, as the authors point out. Although Russia’s Ministry of Finance is drafting a “law ‘On microfinance organizations’ that will more specifically regulate activities of those institutions performing microfinance activities,” an overly-complicated structural environment for practice of microfinance engrossing no less than seven non-bank entities and two licensed banking entities persists (page 9). Some of these entities, such as the Credit Consumer Cooperative of Citizens (CCCC) which may not exceed 2,000 members, have limits place on their expansion.

Credit cooperatives, non-bank institutions drawing 87 percent of their funds from members’ deposits, reported a combined gross loan portfolio (GLP) in 2006 of RUB 11.4 billion (USD 434.3 million) and comprise of 66 percent of all MFIs operating in the country. Included within this category are the Rural Credit Consumer Cooperatives (RCCCs) which account for 21 percent of all MFIs and a combined GLP of RUB 2.1 billion (USD 81.3 million). Private Commercial Noncredit Microfinance Institutions (PCMIs), drawing capital for their loan portfolios from 97 percent debt, encompassed only 18 percent of total MFIs with a combined GLP of RUB 1.8 billion, or USD 68.3 million.

Transitioning to benchmarking, the report higlights Russian MFIs statistics as they compare to peers in surrounding regions.

Beginning with scope and outreach, the authors note that GLPs and total assets are increasing—30 and 40 percent between 2004 and 2006, respectively—as loans shrink as a share of the asset structure. This may be caused by a 2006 decline in the median number of borrowers per MFI. Despite the upward trend in GLPs, Russia lags behind all three benchmark regions.

Profitability and financial sustainability also show gradual improvement, but only as Russian MFIs attain medium to large scale along with age and, on average, they are less profitable than institutions in CA and Eastern Europe (EE).

With regards to revenues, Russian MFIs currently offer interest rates at or above the rates offered by conventional banks. However, the authors point out that “strict loan requirements, long application procedure[s] and large loan amounts prevent banks from becoming serious competitors to many microfinance institutions in Russia (page 12).”

Moving to efficiency and productivity, the authors observed that Russia is similar to surrounding regions in the former, but differing microfinance practices—such as a prevalence of individual lending over group-based methodologies and a large share of MFIs offering savings services—results in a borrowers per loan officer ratio which is 1.5 times lower than in C&EE, the next least productive region among the benchmarks.

Lastly, the authors report that Russian MFIs have average risk levels of 1.7 percent of loans, which is standard in comparison to surrounding regions and low globally. Risky loans were defined as those overdue for more than 30 days.

By Anthony Busch, Research Assistant

Additional Resources:

“Microfinance in Russia: Benchmarks and Analysis 2006″

Ministry of Finance of the Russian Federation: Home

MIX Market: Home

OANDA: FXConverter

Russian Microfinance Center: Home, About