Micro financing to ease small borrowing costs

A bill on micro-lending organisations is to pass the State Duma this week. It is expected to make loans more accessible for small business and individual borrowers in Russia.

While the regulatory regime has been lacking, the practice of micro-lending has already been working for more than 15 years in Russia. What it needs now is more clear rules for operating in the market.

The expected law will see the registration of all financial organizations willing to provide the micro-loans up to 35 thousand dollars, according to Finance Minister, Alexey Kudrin.

“We expect several hundreds of organizations to register as such, primarily in small towns where access to credit resources is difficult and banking is underdeveloped.”

Currently the average consumer loan interest rate may total 50%. The Finance minister said extending this market's infrastructure and reducing administrative expenses will make it possible to cut the rate for the consumer.

However, Finam analyst, Yaroslav Kabakov is sceptical

“The rates are most likely to remain the same as we have now in the micro-loan market – from 30-50%. Some banks even offer micro-loans at about 80%. Just for comparison in the US the rates for micro-loans range from 7 to 11%. “

The positive side of micro-financing is speed and simplicity. About 400 thousand entrepreneurs working in Russia already use micro-loans, and the demand is growing at a time when small entrepreneurs are strained to get start-ups.

Russia's financial authorities expect this market to reach $5 billion dollars in the next 2-3 years.