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Tens of Billions Spent on Supporting Small Businesses in Russia were Wasted
December 25, 2019 18:13

For four years, the Russian state spent 80 billion rubles to support small business, but the effect is not obvious. It is more profitable for small entrepreneurs to take a loan from a bank on market conditions than to apply for state support. 

80 billion rubles spent on supporting small businesses over the four years from 2014 to 2018 did not affect the situation. This was discovered by the Accounts Chamber, having analyzed the effectiveness of state support for small and medium-sized businesses (SMEs). Forbes reviewed the report “Assessing the State of Guaranteed Support and Microfinancing of Small and Medium Enterprises in the Russian Federation in 2015–2018 and the First Half of 2019”.

National project

In the next five years, the state plans to spend 244 billion rubles to support small and medium-sized businesses, it follows from the passport of the corresponding national project. From 2014 to 2018, it has already allocated about 80 billion rubles to support SMEs through specialized organizations. But the number of SMEs in these years remained almost unchanged, still at the level of 5.5 – 6 million, and the number of workers employed in the SME sector was in the range of 18.9 – 19.3 million. The financial indicators of enterprises that received state support have changed in different ways, which does not allow   to unambiguously assess the effectiveness of state funds spent on them. 

The state provides the main support to small and medium enterprises through preferential financing by specially created SME Corporation, SME Bank and regional guarantee organizations (RGO). The main financing is provided to business through partner banks and MFIs, which issue loans to entrepreneurs on favorable terms.
The Russian Geographical Society and the SME Corporation act as guarantors for entrepreneurs who want to get a loan from a bank, but cannot do it, for example, because they have nothing to pledge on such a loan. The maximum guarantee percentage is 70% of the debt if the loan is provided by a partner bank. Soft loans are issued by MFIs and partner banks, as well as directly by SME Bank. For the analyzed years, the volume of soft loans under this program amounted to only 2% of the total volume of bank loans attracted by small and medium enterprises.

Disadvantageous conditions

Such a small volume of soft loans is explained by unfavorable conditions offered by relevant organizations. For example, some geographic organizations do not aim at helping entrepreneurs, but at earning, the auditor Danil Shilkov said.
The RGO takes a commission for issuing guarantees, and the rate on it, the procedure and terms for payment can be determined independently. The commission for issuing a soft loan in the past five years has ranged from 0.1 to 2.0% per annum accrued on the amount of the guarantee. And since some RGOs ask businessmen to pay this amount at a time and immediately upon obtaining a loan, this led to the fact that the cost of a loan for an entrepreneur sharply increased. It turned out to be unprofitable to take a loan.

“As a result, the cost of credit resources secured by guarantees of the Russian Geographical Society, often exceeded the maximum level of the average weighted interest rate on loans granted by credit organizations to SMEs in the whole country,” the joint venture report said.
Thus, the average weighted rate on loans provided to SMEs throughout the country amounted to 9.82% in 2018, a loan with a guarantee of SME Corporation - 16.85%, a loan with guarantee of SME Bank - 16.12%, and a loan with guarantee of Russian Geographical Society - 11.71% per annum, the report said.
“Accordingly, it becomes more profitable for businesses to take loans from banks,” Shilkov said.

What does business think

Business representatives evaluate government support in two ways. According to them, the authorities offer favorable conditions for lending, but on the other hand, getting such a loan is too difficult. For example, Vadim Yakimov, the owner of the Papa Panda company, which produces and delivers sushi, rolls and noodles in Volgograd and Samara, is pleased with the cooperation with the state. His company was able to take a loan of 3 million rubles under a program of support for SMEs at 7.5% per annum. “I never found loans below this percentage. As a pledge, they took equipment that other commercial banks either don’t take, or take, but at a huge discount,” he says.   

According to Anton Vasilenko, the owner of the company JAST EPL, which manufactures equipment for the sale of ice cream, it is difficult to get any support. His company took a one-year loan from SME Bank for 1 million rubles at 6.5% per annum. In his opinion, the advantages of the program are a small percentage of the loan, the absence of insurance and guarantors. But the downsides are the presence of large paperwork. 

Author: Anna Dorozhkina

Tags: Russian business Russian economy Russian companies   

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