The EBRD today agreed to a 50 percent funding increase for its largest and oldest lending programme for micro and small businesses, the Russia Small Business Fund (RSBF), as well as a four-and-a-half-year extension of the fund’s activities up to the end of 2015.
On June 14, the EBRD Board of Directors, representing the 61 governments and two international institutions which own the Bank, voted in favour of a funding increase which will boost EBRD’s investments under the RSBF to USD 450 million.
This flagship EBRD programme has played a pivotal economic and social role in Russia over the last 16 years. Its new term of life will give the programme a chance to help bridge what, despite the RSBF’s success, remains an enormous gap between supply and demand in terms of micro and small business lending in Russia.
At the grass-roots level, the RSBF largely funded the shuttle traders who brought imported goods to Russia’s markets in the mid-1990s. This offered ordinary consumers a choice they had never before been given in Soviet times and gave tens of thousands a chance to set up their own businesses.
Initially, the programme particularly targeted former Soviet officers because their military training had taught many of them the rudiments of management and organisation. Thus two brothers who used to work in military’s refrigerated food stores used their knowledge to launch a highly successful ice cream business in Siberia with RSBF loans.
Another ex-officer who had been a storekeeper in a military spare parts depot began repairing cars in the street outside his home before migrating to an open air market for car parts on the edge of the Moscow Ring Road where sellers just laid their wares out on plastic groundsheets. Thanks to RSBF funding, this is now a sophisticated auto mall.
The RSBF has also trained a generation of bankers in the prudent approach and sound credit analysis needed to make micro and small business lending profitable. Nearly 9,000 Russian bankers have gone through what remains the only large-scale training programme of its kind in Russia. Many of them now occupy leading positions in the industry.
Lending to micro and small businesses was one of the first victims of the 2008-2009 crisis as local banks slashed their exposure to a sector which at the time was estimated to employ around one fifth of the Russian labour force.
Throughout the recent crisis, the EBRD maintained its support for RSBF partner banks all of which survived the turmoil. As a result, these banks are now once again increasing their lending to the sector.
Despite its recent setback, the micro and small busineses could nevertheless raise their contribution to Russia’s GDP to 20 percent or more by the next decade, according to some estimates, against less than 15 percent at present, thus providing job opportunities for million of citizens and strengthening the foundations of the market economy.
The creation of a dynamic small business sector is vital for the transition to a market-based democracy as entrepreneurship is a natural constituency for free-market reforms.
In the 16 years to the end of March 2011, the RSBF made over 600,000 loans to Russian micro and small business borrowers, disbursing a cumulative total of nearly USD 9 billion through partner banks participating in the programme. Seventeen Russian banks are currently RSBF partners.
Over 90 percent of the fund’s loans have gone to borrowers outside of Moscow and St. Petersburg, underlining its commitment to regional development and bringing tangible benefits to less developed areas of the country. The RSBF programme has traditionally been strong in the Urals and Siberia, where a quarter of Russia’s population lives.
The idea of creating the RSBF was born at the Tokyo G-7 summit in 1993. A year later, the G-7 members and Switzerland pledged USD 150 million with the EBRD raising a matching sum. In 2001, the EBRD doubled its contribution to USD 300 million. No additional funding from the original co-sponsors is being sought for the latest increase.