Russian Microfinance Sector Dipped in Economic Downturn

Microfinance Focus, June 18, 2010: The global financial crisis began to affect Russia by the end of 2008 and its microfinance sector got the blow when concerned over the threat of Ruble devaluation, the public began to withdraw their savings and convert them into foreign currency, resulting in a massive outflow of savings from Russian microfinance institutions (MFIs). Rising unemployment caused higher delinquency rates on consumer loans, which comprise a major part of Russian MFIs’ portfolios and which lead to dwindling external funding from investors and commercial banks.

These findings come from the Microfinance Information Exchange (MIX) recently released report, ‘Russia Microfinance Trend Report for 2008-2009’. The report which is based on three studies: the sixth annual round of microfinance market monitoring, a benchmarking project based on data from 85 Russian MFIs, and the 2009 crisis monitoring effort. Produced by MIX in conjunction with Russian Microfinance Center (RMC) and Russian SME Resource Center (RCSME), the report covers the following topics: findings of the crisis monitoring, the macroeconomic environment and state of the microfinance industry in Russia, trends in microcredit services and in deposit mobilization, the funding structure of Russian MFIs, and the financial performance of Russian MFIs in 2008-200.

According to the report, the impact of the crisis was at its highest in 2009, as confirmed by the findings of the 2009 crisis monitoring that demonstrated a drop in loan portfolio and higher portfolio-at-risk (PAR). The drop in loan portfolio was mainly due to a decline in demand both for consumption loans, as consumers preferred to save rather than spend during a period of instability, and for microenterprise loans, as business activity decreased in response to lower consumer demand.

However as the country resumes growth, the report expects the loan portfolio and outreach of microfinance institutions to grow at a faster pace than those of commercial banks, since microfinance providers have less inertia and a higher ability to respond to changes in the environment, coupled with high mobility of microentrepreneurs and the emergence of new borrowers micro-business start-ups by the former unemployed. The adoption of a Federal Law on Microfinance and MFIs expected in 2010 will give additional impetus to the development of microfinance and the emergence of new major players in the market.

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