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2007 was another year of impressive growth and development for the microfinance industry in Russia. The number of microfinance institutions (MFIs) increased to approximately 2,000, serving nearly 700,000 customers (borrowers and savers). According to the Russian Microfinance Center (RMC) estimates, the aggregate offer of loans by non-bank MFIs totaled 625 million USD. Microfinance banks, such as KMB and Forus, as well as downscaling programs from mainstream commercial banks supported by the European Bank for Reconstruction and Development (EBRD) had an aggregate portfolio estimated at 2 billion USD. By conservative estimates, by the end of calendar year 2008, the aggregate loan portfolio for the sector will range between 2.4 and 3 billion USD.

Table 1 presents estimated volume numbers for MFIs in Russia, which range from credit cooperatives, to deposit taking non-bank financial intermediaries, to banks and government funds. Credit consumer cooperatives and credit consumer societies (grouped under the umbrella term of credit unions) served more than two-thirds of total borrowers in the Russian markets. Microfinance and downscaling banks had much smaller outreach at close to 15 percent, but their portfolio accounted for more than two-thirds of the total microfinance portfolio in the country. However, all microfinance providers collectively served less than 1 percent of the total population in Russia, indicating that the sector still has plenty of room to expand in the coming years. Supply of microfinance will increase as non-bank MFIs expand their branch networks. They opened new branches in small towns and rural communities, where banks are few or absent, and thus expanded the microfinance customer base.

However, growth is restrained by a number of factors. First, microlenders often lack access to finance. Even though commercial banks, investment companies and private investors show an increasing interest in the Russian microfinance market, the supply of finance is insufficient and does not match the current demand for microloans estimated at 10 billion USD in early 2007. Second, their dynamic development in terms of scope of operations and number of branches requires better business processes and organization, and a more effective system of staff recruitment and training. In addition, over the past year, many commercial, non-bank microfinance providers entered the marketplace; this segment is now playing a larger role in the microfinance provision. This evidences an increased focus on microfinance among private investors who contributed a substantial portion of funds to the microloan portfolios of commercial retail lenders.

This report is a joint effort between the Russian Microfinance Center (RMC) and the Microfinance Information Exchange, Inc. (MIX). It presents an overview of data from the MicroBanking Bulletin for 40 MFIs benchmarked in 2007, and performance trend data for 11 MFIs involved in the benchmarking project between 2005 and 2007. The analysis of Russian MFIs’ financial performance is accompanied by a brief update on the macroeconomic environment, recent trends in bank lending, and changes in laws and policies affecting microfinance in 2007 and in the first half of 2008