The
Golden Age of SME Lending
Oleg
Tuntsev sweeps his hand around
his small, bustling chocolate
factory with unmistakable pride.
“We started in 1999 with
a loan of $5,000 and eight staff
making five tonnes of chocolate
a month. Now we have more than
200 people working for us, and
we make 200 tonnes of chocolate
and $500,000 profit per year.”
His company, Bravo, was helped
by a loan from KMB, a bank set
up with EBRD support in the tumultuous
days of 1999 when Russia's entire
financial system was in crisis.
Tuntsev says: “When we started,
it was very difficult to find
anyone to lend to us. Now, we're
constantly called by banks for
lending, leasing, any kind of
financial service we might want.”
SMEs all the Rage
It's taken a long time for lending
to small and medium-sized enterprises
(SMEs) to take off in Russia,
but now there is momentum in banking
for small business. Says Chikako
Kuno, EBRD's Director for the
Group for Small Business: “There's
heavy competition in corporate
and consumer lending, so every
big Russian bank is now making
a bee-line for the SME sector
which they've largely ignored
in the past and where creditworthy
clients still need financing.”
They could all learn a thing or
two from KMB, which has been doing
SME lending longer than any other
bank in Russia. Ilnar Shaymardanov,
head of KMB's Kazan lending operations,
says: “Now it's very popular
to work with SMEs. But when we
started in 1999, we were unique.
Despite our competitors' newfound
interest in SME lending, small
businesses still tend to be underserved
in terms of credit access, and
KMB remains the trailblazer in
this market.”
KMB has since proven to the rest
of the market that the sector
is profitable, and underlined
that point last year when Italy's
Banca Intesa bought 75 per cent
minus one share; the EBRD owns
the remaining shares.
That's quite a change from 1998
when foreigners and Russians alike
were fleeing the financial sector
after the rouble crisis caused
bank after bank to fall. Rather
than cut and run, however, the
EBRD pulled what remained of its
retail banking operations together
and with the Soros Foundation,
the German development agency
DEG and the Dutch microfinance
fund Stichting Triodos-Doen, it
opened KMB in 1999 to focus on
micro and SME lending.
Financing Grassroot Start-ups
Says Reiner Mueller-Hanke, KMB's
Chief Executive Officer: “With
KMB, the EBRD has demonstrated
its strong commitment to helping
Russia's economy develop through
small businesses. KMB's success
proves that SME lending can indeed
profit banks.”
KMB is one of 26 Russian banks
that have benefited from the EBRD's
donor-backed Russian Small Business
Fund through which 357,000 entrepreneurs
have been financed for a total
of $3.7 billion in loans. The
RSBF provides capital to local
banks and, as importantly, international
expertise to encourage them to
build their small business portfolios.
The programme is supported by
the European Union, Canada, France,
Germany, Great Britain, Italy,
Japan, Switzerland and the United
States.
Why has SME lending caught on
in Russia? Shaymardanov says:
“SME lending is lower risk
than retail lending, yet offers
higher margins. Our bad SME loans
are less than one per cent of
our portfolio, while bad retail
loans, for some banks, can be
as high as 20 per cent. Interest
rates on SME loans can be as high
as 20 per cent. Everyone knows
the rates will go down soon because
competition is increasing, so
you could say we're in the golden
age of SME lending in Russia.”
After a two-year stint in Moscow,
Shamyardanov, a 29-year-old fast-rising
manager, recently moved back to
his native Kazan. The capital
of Russia's Tatarstan Republic
is 800 km east of Moscow and will
be in the international limelight
in May when it hosts the EBRD's
2007 Annual Meeting.
Finding a Niche
Shamyardanov says the challenges
and opportunities facing SMEs
in Kazan are similar to elsewhere
in Russia. On the one hand, the
economy is growing fast, fuelled
in particular by rising consumer
demand which presents good opportunities
for small firms like Bravo. On
the other hand, the retail market
is increasingly dominated by big
financial groups. “That's
the story in many sectors of the
economy,” Shamyardanov says.
“The challenge for SMEs
is to find a sector where those
big operators aren't working.”
Like chocolate, for example.
Printing is another sector offering
opportunities to fleet-footed
start-up firms, as the Kazan-based
publishing house Logos has discovered.
General Director Maksim Andreev
says: “We've found a niche
for ourselves publishing books
ordered by various regional ministries,
particularly the Ministry of Interior.”
Ministries, local politicians
and churches order glossy coffee
table books on Kazan, as well
as paying to print their memoirs
(so-called 'vanity' publishing).
The business is obviously doing
well. Andreev has taken out a
€200,000 leasing loan from
KMB with which he bought several
large colour printers. He also
recently took out an SME loan
from KMB, also for €200,000,
with which he is building new
headquarters.
Andreev says the printing sector,
in contrast to other sectors of
the Russian economy, favours small
businesses.“The technology
is changing all the time, so we're
small enough to be able to update
quickly.”
