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    of an all-inclusive (universally accessible) system to improve
           access to retail finance in Russia in 2008 - 2012

Key roles for entrepreneurs and local community groups
Measures designed to build capacity and provide technology solutions
Concurrent two-way development: banks downscaling to reach new markets
“from top down” vs. non-banks building their capacity “from bottom up.” Their
regulation should be the same in overlapping areas
The Concept can be implemented once the government adopts enabling
policies for retail finance infrastructure, microfinance and branchless banking
The proposed measures are not exhaustive, but they have priority
Goals of the Concept: promote a diverse and accessible financial system in
Russia; increase access to finance from 55% to 85% of the public and business
operators by 2012, to contribute to Russia's Development by 2020 Strategy and
to help increase Russia's middle class to 75% of the population
Objectives of the Concept: analyze access to finance and its implications for
macroeconomic indicators; identify key barriers; offer effective solutions,
including policy initiatives; project outcomes and contingencies
Access to financial services in Russia:
– linked to living standards, private entrepreneurship, social
inequalities, rural development and the country's
comprehensive social and economic development

 Time deposits with banks                  around 20-25% of the public

 Consumer credits                          around 30% of the public

 Mortgage loans                            less than 3% of the public

 Transactions with securities              no more than 10% of the public

 Purchase of shares in Mutual Investment   approx. 4% of the public
 Microlending                              no more than 15% of the demand
    Social and economic reasons to improve access to financial
               services and to promote microfinance

   As of early 2008, 40% of the Russian population lacked access to banks
    and finance: these included people living outside big cities, low income
    communities, and microentrepreneurs.
   Aggregate demand for credit (loans) up to 300,000 rubles per borrower
    is around 250 bln. rubles, while aggregate supply does not exceed 35
    bln. rubles (14% of the demand)
   In addition, a demand for start-up capital among low income people is
    at least 500 bln. rubles
   Infrastructural causes of the shortage: 1) regional variations in the
    development of finance infrastructure; 2) unequal distribution of banks'
    infrastructure inside each region;
   Financial service delivery technologies do not match the needs of the
    target group

CONCLUSION: two types of measures are needed to address the
  problems: institutional (to build the capacity of financial institutions)
  and technological (to introduce technology for better access)
                      The Concept
  A financial system widely accessible to the public
 Programs and plans of financial market development
 New remittance and lending technologies
 Legal regulation of relationships in the sphere of
  “branchless” delivery of financial services to the public and
 Regulatory initiatives

The Concept offers a comprehensive solution: building
  a diversified model of retail finance delivery (various
  types of institutions and technologies targeting
  different groups of customers). Emphasized role of
  the regulation, differentiated risk control and
  avoidance or regulatory arbitrariness inside various
  financial subsystems
                      Key Strategies
       for building an all-inclusive financial system
   Broaden and diversify banks’ branch networks by making it easier and
    cheaper to set up POS, including “mobile bank offices”
   Promote MFI while preserving a balanced diversity among them. The
    extent of microfinance regulation should be diversified and directly
    linked to the required degree of customer protection
   Facilitate the use of promising technology for branchless banking. The
    model involves: broader use of network-based agents, such as the
    Russian Post, as well as MFI; mobile phone–based and internet
   Provide an option of simple transformation from a non-bank
    microfinance institution into a regulated credit institution to ensure
    continued growth of the providers’ functional capacity and transaction
   Implement targeted programs to improve financial literacy of the
    general public and SME operators
                 The Concept: Key Measures
   Institutional Capacity Building Measures: broaden the range of
    financial intermediaries
     Broaden banks’ branch networks
     NDCO
     Credit Cooperatives and Cooperative Banks
     New types of microfinance institutions (MFI)
     Credit brokers, incl. mortgage credit brokers
     Collection agencies and other “loan infrastructure”

   Technology Based Measures:
     Make service delivery cheaper, lower barriers to market entry
       (microfinance technology)
     Refinance the intermediaries (CB – commercial banks – MFI)
     Use technology for branchless (remote) service delivery
     Improve financial literacy of the public
     Government-operated SME and microbusiness support programs
                     Key Policy Initiatives
   Improve market transparency, protect the investors: Draft Law on MFI
   Ensure sustainability of the credit cooperative system: Draft Laws on
    Credit Cooperatives, on amending the Law on Credit Consumer
    Cooperatives of Citizens, appoint a government agency to oversee CCCC
   Streamline requirements for NDCO executives, and otherwise facilitate
    transformation of unregulated “non-credit” MFI into regulated credit
   Facilitate mircolending by banks
   Better branchless banking regulation: amend the banking legislation, the
    AML/CTF law, and adopt provisions for e-money
   Develop an infrastructure for microfinance: staff training and re-
    training, MFI rating and benchmarking, specialized MFI audit, attract
    investment in microfinance, etc.
   Involve the general public and SME operators in financial literacy
    programs tailored to their needs
                    Global Microfinance
   Combined MFI total loan portfolio is estimated at USD 70 million
   The total number of microfinance consumers has grown more
    than 5-fold, bringing the number of microborrowers to 120 million
    over the past six years
   Average loan sizes vary between a few dollars to a few thousand
    US dollars
   Banks, credit cooperatives and specialized MFI each make one
    third of all loans
   Professor Muhammad Yunus was awarded the 2006 Nobel Peace
    Prize for his contribution to microfinance
   In the EU countries, microfinance is supported as part of
    promoting innovation and investment, and also as part of social
    programs to facilitate employment, eradicate poverty, etc. There
    are specialized microfinance programs
   Governments of developing counties also use microfinance to
    address social and economic problems: the Mexican experience,
    Additional Enabling Measures for the Russian
                Microfinance Market

 Establish guarantee funds
 Develop a support infrastructure for microfinance,
  such as training institutions, rating and audit
  services, and investment in the microfinance
 Partially subsidize the costs of training, rating
  assessments and audits for MFI, contribute to MFI
  loan portfolios to encourage lending to high-risk
 Cofinance regional efforts to encourage
  microfinance as a mechanism of SME development.
        The Concept: Expected Outcomes

 A diverse, innovation-driven finance and credit
  system, sustainable and resistant to external
  and internal risks and crises
 Substantially improved access to finance for the
  public and SME, from 55% to 85% by 2012
 Contribute to broader objectives, such as
  bringing the middle class to 75% of the
  population by 2020, overall SME development,
  poverty reduction, rural development and the
  country's comprehensive social and economic
      Numerical Targets for the Microfinance
         Sector Development by 2012
   At least 5,000 credit consumer cooperatives serving at least
    10 million customers
   The number of regional and municipal MF programs and
    SME support funds matching the number of regions and
    municipalities: 80 and 300, respectively
   At least one specialized non-bank lending institution, such as
    NDCO or another type, per region, i.e. at least 80 non-bank
    microfinance institutions or their branches
   Credit policies of most banks include microlending, SME
    support and cooperation with non-bank MFIs

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