Financial Services for Russian Small Business - Market Situation and Perspectives

This paper describes small business demand for financial products and mechanisms in Russia. It examines the scale of the small and medium enterprises (SME) sector, aggregate demand and sources of financing, and the supply of financial services to small businesses. It also presents key directions and instruments of development. The term, SME, has different connotations in Russia than it has in other countries, resulting in an underestimation of the scale of its SME sector. The overall unsatisfied demand of Russian small businesses is no less than $10 billion. Russian SMEs own earning is their key source of financing and they are reluctant to access credit because of its high cost. Russia also lags behind other transition economies in terms of key financial market indicators. The paper examines:

• Bank and non-bank supply of services to small businesses;
• Financing available for start-ups;
• Problems faced by innovative businesses and venture financing in Russia;
• Opportunities in the stock market;
• Governments role.

The paper concludes by recommending short, medium, and long-term goals for the improvement of the Russian market for financing small businesses.