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Banking on Small Business

Banking on Small Business: Microfinance in Contemporary Russia

Copyright Date: 2007
Edition: 1
Published by: Cornell University Press
Pages: 240
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  • Book Info
    Banking on Small Business
    Book Description:

    How do you prime the well of economic growth? First, put a negligible amount of money into exactly the right hands. Then, step back. A vibrant and rapidly expanding national economy needs an active small business sector, but small entrepreneurs need loans to expand their businesses. Microfinance also has potential to be an engine of economic growth, although this prospect has been overshadowed by its image as a tool for alleviating poverty.

    In Banking on Small Business, Gail Buyske analyzes three themes in economic development: the global growth of microfinance, banking sector development, and Russian entrepreneurship. These three themes intersect at KMB, the Russian Small Business Bank, where Buyske chaired the board of directors for six years. This book is in part an account of KMB's role in initiating great changes through a series of apparently small actions.

    In reviewing Russian entrepreneurship and banking since the advent of perestroika in the mid-1990s, Buyske stresses that Russian entrepreneurship is more dynamic than usually perceived and that the historic lack of small-business and start-up finance was largely owing to the practices of the Russian banking sector rather than to any failing on the part of Russian entrepreneurs. Buyske's conclusions have important implications for policy worldwide; she is confident that a broad understanding of microfinance as a profitable, rather than a charitable, endeavor will contribute to the commercial involvement needed to maximize global microfinance growth.

    eISBN: 978-0-8014-6044-9
    Subjects: Finance

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Tables
    (pp. ix-x)
    (pp. xi-xii)
  5. List of Acronyms and Note on Transliteration
    (pp. xiii-xviii)
    (pp. 1-10)

    On a hot Moscow day in 1999 I received an unexpected phone call from my colleagues at the European Bank for Reconstruction and Development (EBRD) in London. They were finalizing the creation of the Russian Small Business Credit Bank, KMB Bank, whose mission was to lend to “micro and small enterprises” (MSEs).¹ They needed some Moscow-based bankers to be members of the board of directors: Would I be interested?

    My instinctive answer was no. After twenty years in international banking, I considered small entrepreneurs to be high-risk borrowers anywhere in the world, let alone Russia. Furthermore, the successes that my...

    (pp. 11-48)

    Financing for low-income borrowers has become an increasingly hot development topic over the past several decades. Such financing leapt into the popular imagination with the much proclaimed success of Grameen Bank in Bangladesh, which was created after its founder, Muhammad Yunus, made a $27 loan to a group of basket weavers in 1976.¹ It has since become headline news, with Yunus and Grameen Bank having been awarded the Nobel Peace Prize in 2006. Much of the attention has understandably focused on microfinance, which, with loan sizes as small as $5–10, and memorable accounts of how such tiny loans have...

    (pp. 49-100)

    Understanding the relevance of the global development of microfinance to Russia requires understanding the development of Russian entrepreneurship. Although the Russian MSE sector is typically considered to be underdeveloped, and the banking sector is often identified as a culprit, I argue that Russian MSEs are substantially more developed and dynamic than is usually appreciated. This different point of view has important implications for how to encourage the sector’s further growth.

    The key context for analyzing Russian entrepreneurship is that its history is surprisingly short; private economic activity was introduced only gingerly in the Soviet Union in 1987 and not made...

    (pp. 101-159)

    The perceived low level of Russian MSE development is often blamed on Russian banks. Indeed, with MSE lending accounting for approximately 3 percent of total bank lending in Russia, this conclusion is easily understood.¹ Furthermore, while I argued in the preceding chapter that the level of MSE development in Russia is not as low as we typically assume, I can’t argue that MSE lending is higher than it appears. However, the situation is considerably more complex than simple percentages can convey and can best be understood in the larger context of how Russia’s banking sector has developed.

    This bigger-picture perspective...

    (pp. 160-198)

    This book’s three themes of microfinance, the emergence of Russian entrepreneurs, and banking-sector development intersect at KMB Bank, the bank founded in 1999 by the EBRD to lend to micro- and small entrepreneurs.¹ KMB contributes to our evolving understanding of microfinance because it has always treated micro- and small entrepreneurs as closely related, even overlapping, groups. The fact that 59 percent of KMB’s clients more than doubled their loan size over five years is evidence that this approach can be successful in helping clients grow. KMB’s own growth deserves note as well; at the end of 2005 its loan portfolio...

    (pp. 199-202)

    Russia’s experience has a number of lessons with global relevance for microfinance and economic development more broadly. Despite the incredible challenges of the past two decades, Russia is finalizing the creation of the type of inclusive financial system that has become a key development objective for the microfinance field as a whole. The legal, policy, and regulatory environment in Russia is in the final stages of revisions that will strengthen the links of MFIs to the financial sector and facilitate the further growth of MSEs. As important, banks are poised to increase their MSE activity.

    One of the reasons for...

    (pp. 203-210)
  13. INDEX
    (pp. 211-220)