The Worldwide development of the SME sector depends largely on access to finance. Access to credit is also a challenge for Russia’s small and middle-sized businesses because of strict bank lending requirements and lack of collateral.  Banks see small businesses as high risk and avoid lending to that sector.  Or if they do, it will be rather expensive due to high interest rates.       

In Russia the alternative lending market is growing rapidly. According to the Central Bank of Russia (Bank of Russia) the growth of SME lending grew 15% in 2017 and 11% in 2018.  In conjunction with governmental support programs, new players have entered the market. Banks are also creating alternative platforms for financing small businesses.  Development of non-bank lending is also facilitated by the growing FinTech industry, which apart from the lending function, offer applicants an automated credit assessment eliminating the need for paper based documentation and lengthy visits to bank offices.   Subsequently further growth of alternative lending for SMEs is predicted in Russia.

Nevertheless, access to non-bank lending is currently only possible through microfinancing as stipulated by Federal Law No.151-FZ dated 02 July 2010 «On microfinance activities and microfinance entities». The same law regulates the size, procedure and requirements for granting micro credits, procedure for acquiring the status of a microfinance entity as well as rights and duties of the Bank of Russia in this area.

The Bank of Russia is the regulator responsible for issuing licenses for companies (MFOs) who provide financing for individuals and to those who are focusing mainly on business financing.  According to the respective State register there are currently 210 business finance MFOs operating in Russia.  To be registered as a business finance MFO the entity has to comply with the following requirements:

  • number of credit agreements signed with sole entrepreneurs and legal entities should be over 70% in the credit portfolio
  • volume of credits granted to sole entrepreneurs and legal entities should be over 75% in the total volume of credit granted.

Most of business finance MFOs develop on-line services and usually provide credits only up to  US$ 1,500 to US$3,000.   Some entities offer larger amounts, up to US$ 46,000, depending on assets, long-term relationship with a borrower and a positive credit history.

A potential borrower should meet the following minimum requirements:

  • be a Russian citizen, with a Russian passport and permanent registration on the territory of the Russian Federation
  • be of age 18 years and older
  • be a sole entrepreneur/company, registered in Russia for not less than 6 months
  • have regular bank transactions
  • provide a well-thought-out business plan
  • liquid assets and no payables are desirable.

Advantages of applying as an MFO:

  • Short application period with a minimal documentation
  • microloan could be approved and granted within one or a several days
  • rates are transparent, there are no additional fees, free customer service is offered
  • various options for cash withdrawal and repayment of debts (bank cards, payment terminals, E-money etc.).

Disadvantages of applying as an MFOs:

  • higher rates
  • limited maximum credit amount
  • short terms of borrowing

Among main financing sources of MFOs are:

  • deposits from individuals (a minimum deposit is 23 thousand USD);
  • bond loans (used only by the largest MFO);
  • foreign funds (extremely rare);
  • fund raising in cooperation with banks (on the basis of MFO affiliation with a particular bank);
  • private Russian investors (used by 70% of MFO).

Source: Credinform Russia

About:  Credinform – Russian provider of company credit reports – online & freshly investigated.    According to the Information and Analytical System Globas, currently more than 1,800 active microfinance entities including 21 business finance MFOs are registered in Russia.