The features of small business financing by microfinance institutions in Russia
Гоголева М. А., Шкрябин А. И. The features of small business financing by microfinance institutions in Russia // Молодой ученый. 2015. №11. С. 793-795.
A significant part of the small businesses acts for only its own fund and may withdraw from the expansion of the business only in order to «stay independent». This is partly a consequence of formed stereotypes about the difficulty of obtaining external financing. On the other hand, the market of financial services for small businesses is still being very limited. The funds requested by a small business from the banks remain at the limit of the threshold of profitability despite the retail credit products provided by banks. The only available resources of external financing for small businesses are its own savings, savings of their relatives or friends and business partners. However, not all of the small business’ subjects can appeal to this type of lenders. In addition, these funds are critically limited. The feature of the small business is in close relations between an owner and the business. A point of view and aspiration of a head nowhere affects on a business as in the small business sector. It seems that with the formation of a successful system of incentives and motivation of the small business sector that semiformal financing will tend to decrease .
Several major problems were emphasized by us during this study which impedes on the increase of the volume of lendings to the small business sector in Moscow:
a) a limited capacity for providing a liquidity support;
b) the obligation for banks to create reserves for loans to small businesses due to the fact that most of these businesses are related to the low-priority group of borrowers (doubtful, when the amount of the estimated provision is from 21 % to 50 % of the principal amount);
c) the potential of banks that focus their activities on small business loans is limited by the formation of the provision by portfolio of similar loans with a size not more than 0.1 % of equity (average — up to 250 thousands rubles);
d) a relatively high cost of credits for small businesses — about 16 %-17 % per year, while for medium and large enterprises this rate is 11 %-12 %.
However, the successful organization and efficient operation of a small business depends on a formation of its resources base with minimum formalities.
We agree with V. R. Bikbulatov that «a large number of local small businesses start with microfinance and the need for this method of financing is increasing» .
Therefore, in that study in case to develop an efficient system of incentives and motivation of the small business development, we are going to rely on improving of the mechanism of debt financing for small businesses in general and microfinance institution in particular.
The key elements of the financial mechanism which defines a financial relationship of stable operation of small businesses, are:
- leasing operations;
- services on a franchise system;
- an availability of extrabudgetary funding sources;
- a coverage of financial risks;
- a formation of special credit institutions and microfinance institutions.
It is necessary to notice the fact that the scope of microfinance successfully passed the initial stage of formation in 2006. Microfinance institutions are an important component of business infrastructure in some regions. However, in many other regions they are either absent or do not act in a meaningful role for the development of the region. This kind of «vacuum» should be considered as probable attractive niche of the small businesses microcredit’s market. All this creates a good opportunity of a relatively fast expansion of this sector. In the recent past the market of micro-resources support outside of the banking sector formed without the interests of the state at first on the basis of international and foreign programs, and later due to the initiative of the microfinance institutions. This lack of interest by the government gave a rise to legal void and related with that difficulties, but on the other hand it also provided a lot of freedom for developing. Nowadays, the microfinance market is very close to the legal relations and a regulation of the state economy. The microfinance system should take its assigned place in the public consciousness and become the object of special professional discussions in case this to be happened. A future regulatory framework for the microfinance sector and its system of government regulation should ensure a compliance of its objectives, which must not coincide with the functions of the banking sector, and retention objectives of macroeconomic equilibrium through the creation of financial and credit instruments to promote small businesses.
In July 2010 the Federal Law № 151 «About microfinance activity and microfinance organizations» was issued . In our opinion that law became an origin of the system’s legal framework. This Federal law defined the lawfulness of the execution of microfinance activities, established a system of state regulation of microfinance institutions, determined the amount, order and position of microloans, of the mechanism of acquisition of the status and performance of microfinance institutions, as well as the powers and duties of the authorized institute in the field of microfinance .
But, despite the introduction and the significance of this legal act, it lacks the organizational aspects of the organization the mechanism of its successful implementation in practice.
Perfectly, the microfinance schemes should be created from the mutually complementary components. There are a variety of financial institutions in Russia nowadays, but it is too early to talk about infrastructure generated by them, especially with the elements of the state regulation system of the incentives and motivation system of the small business development.
Conversely, financial institutions are divided; they serve different sectors of the financial market and the single-minded to different social categories. The so-called «commercial» level includes banks that have the necessary resources but they are not ready to provide the most sought small amounts of financial services, as well as to assume the risks of microcredit. Consequently, despite the fact that the treatment micro-recourse support overwhelmingly supported by banks, they serve only a fraction of demand, mostly in the upper segment. Non-profit institutions lack the financial resources, expertise and they are also limited in a representation, therefore they cannot serve probably high demand.
Microfinance institutions which directly interact with customers are presented on the “micro-level”, which does not set the level of the Institute, and marks the territory on which micro-resources support extends.
Institutions of so called «meso-level» support the functioning and formation of microfinance institutions of the first level in the following areas:
- The resourcing and maintaining liquidity. This direction is formed by special institutions which focus financial resources and transfer them to «grassroots» financial institutions in the form of loans. In the banking sector it is supported by the system of interbank lending. In the field of non-profit institutions such relationships have to be worked out.
- Corporatization of the microfinance sector. A handling of funds between participants of microfinance sector can be executed only on the basis of coherent and unified operations. Such operations are considered to be a product of the microfinance sector corporatization. The corporatization established on the basis of common standards has the ability to relieve the tension in relation to the non-regulated microfinance institutions and identify them on an equal footing with the rest of the financial market. On the basis of a single doctrine standards a reporting methods of administrative control are rectified and the accuracy of the ratings becomes easier and more efficient. These functions can be executed directly by associations and specialized agencies, including the state of the federal and regional authorities.
- Maintenance of the financial market. Federal Law of the Russian Federation from December 30, 2004 № 218 «On Credit Histories», currently applies only to the banking sector. With the increase of the microfinance sphere it’s necessary to enter in the register a data about the payment discipline of microfinance institutions clients.
- Providing loans. In the case if the credit simplifies the access to financial services for entities with a good credit culture and with the previous practice of lending, then a targeted category of borrowers of microfinance institutions determines the absence of this experience. They do not have the necessary equipment to meet the conditions of banks to provide loans. Because of this, it’s most likely that the demand for bank guarantees services or sureties of a special institutions will be. The most part of the organizations that provide a guarantee or surety are formed on the basis of private-public partnership. They can recover their funds for fees from providing services. The need in replenishment of financial resources is only in case when credits or loans are not returned. Taking into account the small rate of the risk from microfinance institutions portfolios, such funds may ensure a high capitalization.
1. Hamza V. A. Small and medium-sized enterprises: financial and credit problems of development / VA Hamza // Bank. business. — 2003. — № 6. — S. 8–11.
2. Bikbulatov VR Organizational-economic mechanism of micro resource support the development of small business: the dissertation... The candidate of economic sciences: 08.00.05 / Bikbulatov Vadim Radikovich; [A protection Place: Ufim. state. Acad. Economics and Service].- Ufa, 2011.- 169 p.: ill. RSL OD, 61 11–8 / 2343
3. Federal Law of 02.07.2010 N 151-FZ (ed. By 06.28.2013) «On microfinance and microfinance organizations» // The official internet-portal of legal information http://www.pravo.gov.ru — 30.06. 2013. Changes made to the Federal Law of 28.06.2013 N 134, entered into force after the official publication
4. Art. 1 FZ Federal Law «On microfinance and microfinance organizations» of July 2, 2010 № 151