WASHINGTON, January 31, 2013 – Up to 1.28 million clients of microfinance institutions and members of credit cooperatives will benefit from a US$20 million World Bank loan approved today by the World Bank Board of Executive Directors for the Microfinance Development Project in Russia. The Russian Federation will co-finance the project in the amount of US$40.3 million. The project will promote development of a proper legal, regulatory, and supervisory framework to foster safe and sound growth of the microfinance and credit cooperative sectors in Russia. It will also help develop the industry's capacity to meet sector-related regulations and institutional standards.
Since currently the microfinance and credit cooperative sectors only cover about 10 percent of the demand, the project will be beneficial to a large segment of the under-served Russian population, mostly living in small and remote areas of the country. Given the explicit targeting of women as good clients by many microfinance institutions and credit cooperatives, it is expected that women will particularly benefit from this project.
“The Microfinance Development Project is aligned with the World Bank Group’s Country Partnership Strategy priorities for 2012-2016, such as increasing growth and diversification, expanding human potential, and improving governance and transparency,” said Michal Rutkowski, World Bank Country Director for Russia. “It is also consistent with the Russian Government’s priorities, including economic growth and diversification, and development of human capital and Russia’s regions.”
The Russian banking sector is relatively shallow, fragmented, and concentrated in Moscow, and thus does not appropriately serve poor rural households and small and micro enterprises. The high cost of setting up and running a branch network in such a large country makes it unfeasible for banks to open branches in smaller communities. As a result, even with relatively high figures of bank branch penetration per 100,000 people (37 in 2011 compared to an OECD median of 33), Russia falls behind many other countries in terms of the geographical expansion of the banking network development, with only 2.73 bank branches per 1,000 square km.
The microfinance sector has the potential to significantly expand access to financial services to individuals as well as small and micro enterprises. In 2012, there were 3,570 registered non-bank microfinance providers in Russia, including membership-based institutions such as credit cooperatives, specialized NGO-type microfinance institutions, public funds, and commercial non-bank companies.
“However, the microfinance industry remains in its early stages of development and is yet to reach scale due to limiting factors, such as an incomplete legal and regulatory framework; a lack of agreed performance and reporting standards, including prudential and non-prudential supervision norms, which would allow for a proper risk assessment of the sector; and weak governance, capacity, and financial infrastructure supporting microfinance,” said Pierre Olivier Colleye, World Bank Project Team Leader.
The lending instrument for the project will be an IBRD Technical Assistance Loan of US$20 million. This will go towards the total project costs of US$40.3 million. The loan has a final maturity of 18 years including a grace period of 5 years.
Russia joined the World Bank (IBRD-member and IDA-donor country) in 1992. Today, IBRD is financing 11 investment projects in Russia for the total amount of US$816 million.