>Posted by Robin Ratcliffe
I am writing at the end of Day One of the VIII National Conference on Microfinance organized in Moscow by the Russian Microfinance Center. Inaugurated last night by Princess Maxima of The Netherlands (who is the UN Secretary General’s Special Advocate for Financing for Development) and Professor Mohammed Yunus, along with a number of representatives of the Russian Ministries of Finance and the Economy, the conference brings together some 400 microfinance players from across Russia.
As the director of The Smart Campaign I’ve been invited to moderate a panel on Consumer Protection in Microfinance, a topic that I am not quite sure is so much on the minds of those in the Russian setting as it is in so many other parts of the world. Why? The sector is very young (10 years at most) and reaches just 600,000 clients. Much of the activity is dominated by small business lending carried out by national and regional government development funds at prime plus 1% at most.
I admit to knowing little at all about microfinance in Russia, but the preponderance of government lending, and thus government attendance at the conference, has surprised me. Credit cooperatives play a big role in savings and lending in rural areas. Until this summer they have been completely unregulated, a fact which foreign investors such as Oikocredit have found very difficult to work with because management, governance, and accounting standards vary widely across this vast country and are generally not up to investors’ investment criteria. The State Duma just passed the “Law on Credit Cooperation” that, for the first time, will regulate standards for some of these co-ops, possibly allowing them to borrow from international funders. This is a real plus since there was tremendous capital flight at the beginning of the global financial crisis when the closure of a number of Russian banks sent savers into a panic. Interestingly the Central Bank of Russia was reportedly “uninterested” in regulating this sector, so the responsibility has been taken on by the Ministry of Finance, another somewhat unusual arrangement. There are also several other proposed laws affecting microfinance, electronic money, and agent banking. If these are passed and implemented, everyone seems to agree it will help organize and monitor the sector much more effectively.
Back to the conference—today’s panels focused on the impact of the global financial crisis on MFIs and their clients. The impact has been significant, particularly accompanied by the capital flight I mentioned earlier and the continuing increase in local food prices. Financing seems to be the largest constraint for microfinance institutions, with local banks out of money and international funders looking for stronger institutions. The flat growth and economic hardships of MFIs and their clients are exacerbated by a devalued ruble, a predicted 4.5% contraction in the Russian economy by year end 2009, and 12%+ unemployment.
So what’s the bottom line? All agreed that there is a tremendous need for micro- and small-business lending but that capital constraints and market unrest are keeping MFIs from meeting the demand. Clearly there is significant interest in lending to MFIs on the part of major international fund managers such as Blue Orchard and Oikocredit, but it appears that a tremendous effort in institutional building—from risk management to governance—is required to bring the sector into the global marketplace on a private commercial basis.