Microfinance in Russia: Support to the Development of Small Entrepreneurship: Policy Paper

This paper discuses the importance of developing an enabling environment for the development of small and medium-sized enterprises. It discusses:

• The aim of the study;
• The role of the Government at this stage of sector development;
• Five types of institutions in the microfinance delivery system.

The paper identifies the following four areas of concern and makes recommendations for each of these:

1) Lack of policy framework

Recommendations include: 

• Government recognition of the sector;
• Creation and maintenance of a level playing field;
• Mandate for non-banking financial institutions to be involved in microfinance;
• Role of the Government in the creation of an enabling environment;
• Need for microfinance institutions (MFIs) to be viable and financially sustainable;
• Protection of microfinance funds against erosion through inflation.

2) Ambiguity in federal regulation in respect to microfinance

Recommendations include:

• Amendment in the law that treats microlending as a commercial activity;
• Exemption of MFIs not involved in deposit taking from licensing;
• Development of a separate legislation for credit unions in consultation with international experts.

3) Unfavorable tax regime for microfinance providers and borrowers

Recommendations include:

• Exemption of all MFIs from value added tax (VAT) on interest revenue;
• Waiving of profit tax for MFIs.

4) Limited delivery capacity

Recommendations include:

• Harmonization of the regulatory environment;
• Promotion of a second tier MFI in the private sector;
• Information center for microfinance.