38. Russian Federation

Key facts on SME financing

The definition of SMEs in the Russian Federation differs from the EU definition, hindering accurate international comparisons.

There are more than 6.2 million micro, small, and medium-sized enterprises in Russia (as of May 2019), accounting for about 22.3% of GDP and employing around 26.3% of the workforce.

New SME loans doubled between 2008 and 2013, but in 2014 there was slight decline (-6%) which was followed by a sharp 28% drop in 2015. In 2016, the downward trend continued (-3%). This movement reversed in 2017 and 2018, as new SME loans increased respectively by 15% and 11%.

In 2018, the continuous (2014-2017) decline in outstanding SMEs loans turned into weak growth (+1%).

Lending conditions tightened considerably in 2014-2015, with an increase of the central interest rate from 5.5% to 17%, but this trend reversed in 2016-2018, when interest rates sharply decreased as a result of an easing of monetary policy, and the launch of new state programmes of preferential lending for SMEs.

The interest rate spread between loans charged to SMEs and to all non-financial enterprises increased in 2015, shrank more than twofold in 2016, and increased slightly again in 2017. In 2018, the decline continued and the indicator reached its historical minimum.

Venture capital (VC) and Private equity (PE) have grown steadily over the 2008-13 period, doubling from 2008 and reaching USD 26.3 billion by the end of 2013. In 2014, there was a slight decrease of 1%, which in the next 2 years was followed by a strong decline (14% in 2015 and 13% in 2016). In 2017, the decline was replaced by low growth (4 %). In 2018, this trend continued, with 8% growth.

Non-performing SME loans doubled between 2013 and 2017 from 7.08% to 14.93% of all loans. In 2018 this indicator decreased slightly, but remained at high levels (12.38%).

In 2018, government initiatives to legalise self-employment were launched. The pilot project started in four regions. In addition, a large-scale state programme to promote entrepreneurship was launched.

One of the factors that could limit the development of entrepreneurship in 2019 is the increase in the tax burden (growth in VAT rate from 18% to 20%).

Table 38.1. Scoreboard for the Russian Federation
Indicator	Unit	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs	RUB billion	2 523	2 648	3 228	3 843	4 494	5 161	5 117	4 885	4 469	4 170	4 215
Outstanding business loans, total	RUB billion	12 997	12 412	13 597	17 061	19 580	22 242	27 785	29 885	28 204	29 219	32 229
Share of SME outstanding loans	% of total outstanding business loans	19.41	21.33	23.74	22.53	22.95	23.20	18.42	16.35	15.84	14.27	13.08
New business lending, total	RUB billion	..	18 978	20 662	28 412	30 255	36 225	38 530	34 236	35 580	38 453	45 005
New business lending, SMEs	RUB billion	4 090	3 003	4 705	6 056	6 943	8 065	7 611	5 460	5 303	6 117	6 816
Share of new SME lending	% of total new lending		15.82	22.77	21.31	22.95	22.26	19.75	15.95	14.90	15.91	15.15
Government loan guarantees, SMEs	RUB billion	..	..	..	24	28	30	22	..	102	141	146,4
Government guaranteed loans, SMEs	RUB billion	..	..	..	51	62	65	48	..	172	234	312
Non-performing loans, total	% of all business loans		5.83	5.43	4.30	4.57	4.31	4.59	5.61	6.91	6.66	6.51
Non-performing loans, SMEs	% of all SME loans	2.93	7.56	8.80	8.19	8.39	7.08	7.71	13.64	14.23	14.93	12.38
Interest rate, SMEs	%	..	..	..	..	..	..	16.09	16.44	13.03	10.84	10.08
Interest rate, large firms	%	..	..	..	..	..	..	12.94	12.95	11.70	9.41	9.17
Interest rate spread	% points	..	..	..	..	..	..	3.15	3.49	1.33	1.43	0.91
Non-bank finance
Venture and growth capital	USD million	14 327	15 192	16 787	20 092	24 126	26 251	25 991	22 386	19 566	20 398	22 065
Venture and growth capital (growth rate)	%, Year-on-year growth rate	…	6.04	10.50	19.69	20.08	8.81	-0,99	-13.87	-12.60	4.25	8.17
Leasing and hire purchases	RUB billion	..	..	..	..	2 530	2 900	3 200	3 100	3 200	3 450	4 300
Factoring and invoice discounting	RUB billion	..	..	361	725	1 230	1 600	1 650	1 400	1 530	1 850	2 630
Source: See Table 38.4.

SMEs in the national economy

There are about 6.2 million micro, small, and medium-sized enterprises in Russia, most of them being micro-firms (41%) and individual entrepreneurs (55 %). The majority of individual entrepreneurs (99.2%) are engaged in microbusiness. The share of small and medium-sized companies, which is only 3.86% of the total number of enterprises, has decreased by 9.2% over the past 3 years, which may indicate a weak effect of acceleration programmes and measures to improve the business climate. One of the reasons also is still the negative attitude of the majority of the population towards business. In this regard, the government launched a federal project to promote entrepreneurship in 2019.

SMEs account for about 22% of GDP and less than 30% of the Russian’s workforce is employed by SMEs.

Russian SMEs are mostly domestic-market oriented. The share of SMEs in the total volume of Russian non-commodity exports is 8.6 %.

There are regional disparities in the development of entrepreneurship in Russia. More than 50% of SME turnover and almost 40% of SME investments take place in one of the ten richest regions.

According to experts, the real distribution may be different taking into account the informal sector, which is about 40% of the Russian economy.

In 2019, a large-scale public company was launched to call for new legislation on self-employment.

For the self-employed, a new “Professional profit tax” was introduced with a low rate. In the first 3 months of 2019, about 40 000 people registered as self-employed (mostly taxi drivers).

In Russia, key criteria to classify SMEs are the number of employees (up to 250) and the revenue (up to RUB 2000 million). These criteria are regularly changing, making it difficult to conduct a comparative analysis of the development of the SME sector and assess the effectiveness of government support measures. The 2007 Federal Law on “Development of Small and Medium Entrepreneurship in the Russian Federation” defines the sizes of SMEs as follows:

Table 38.2. Definition of SMEs in the Russian Federation
Type	Employees*	Revenue (RUB million)
Micro	Up to 15	Up to 120
Small	16-100	Up to 800
Medium	101-250	Up to 2000
Note: For the light industry, individual criteria are established.
Source: Federal Law on “Development of Small and Medium Entrepreneurship.

It is important to note that bigger SMEs tend to specialise in cutting-edge sectors. As a matter of fact, small businesses focus on trade and the provision of services to the population, while medium-sized companies are more represented in areas with higher value-added such as manufacturing, construction and agriculture.

A unified State registration system was created for SMEs in 2016. The State Tax Administration collects the data on a monthly base. According to statistics provided by State Tax Administration, the figures are the following:

Table 38.3. Distribution of firms in the Russian Federation, 2019
By firm size
Firm size (employees)	On 10 May 2019
SMEs (up to 250)
Individual entrepreneurs	3 410 043
Micro (up to 15)	2 535 614
Small (16-100)	220 245
Medium (101-250)	18 302
Total	6 184 204
Source: State Tax Administration.

SME lending

From 2009 to 2013, there was a steady increase in outstanding SME loans, on average 18% per year, accompanied by an increase in the provision of new loans to SMEs.

This trend reversed in 2014. The decrease intensified in 2015 and continued in 2017, although it was less pronounced. In 2018, SMEs loan portfolio increased again, by 1%.

New SME loans in Russia doubled between 2008 and 2013. This trend halted in 2014, as the amount of new SME loans decreased. In 2015, there was a dramatic drop in the amount of new SME loans (-28%). This downward trend continued in 2016 (-3%). A new upward movement began in 2017 and was confirmed in 2018, with the indicator nearly reaching 2012 levels.

The share of SMEs in outstanding business loans in 2008-2012 varied between 21% and 24 %. Since 2013, this indicator declined steadily, reaching a minimum of 13 % in 2018. The share of SMEs in new loans showed similar dynamics until 2016. In 2016, it reached a minimum of 14.9% and stabilised at a slightly higher level (16% in 2017, 15 % in 2018).

Credit conditions

The Central Bank of Russia (CBR) has provided monthly data on average interest rates for SMEs since 2014. According to the CBR, the average interest rate on long-term loans for SMEs charged in December 2014 amounted to 16.09%, more than 300 basis points higher than for all non-financial enterprises. This rate increased slightly to 16.44% in December 2015, while the spread reached 349 basis points.

Conditions improved in December 2016, as the average interest rate on long-term loans for SMEs decreased sharply to 13.03% following the decline in the CBR central interest rate (due to lower levels of inflation) and the launch of state programs of preferential lending for SMEs. The spread with the average interest rate for all non-financial enterprises decreased to 133 basis points. In 2017, these state programmes were expanded, which, along with low inflation and a decrease in the interest rate of the Central Bank, allowed for a further reduction of interest rates for SMEs to 10.84%. Nevertheless, the spread increased to 143 base points. In 2018, interest rates decreased again, but more so for SMEs, leading to a record-low spread of 91 basis points.

Equity financing

Venture capital (VC) and Private equity (PE) investments are a marginal source of financing for Russian SMEs. After the boom in 2012-2014, there was a significant decline in activity in the VC and PE market, which lasted until 2016. In 2017, the situation stabilised and VC and PE investments began to grow again. At the end of 2018, the growth of VC and PE capital amounted to 8.17% compared to the previous period and reached USD 22 billion.

About 70% of VC investments take place in the IT sector. The government has a significant impact on the venture capital market. More than a quarter of venture capital funds are funds created with the participation of the state. About 20% of venture investments in 2018 were made with the participation of funds with state capital. Venture investments of funds with state capital in non-IT companies amounted to 72% of all VC investments in this sector.

Other indicators

The share of non-performing loans (NPLs) as a proportion of all SME loans more than doubled between 2008 (4.3%) and 2010 (8.8%). Since then, this ratio has declined to 7.1% in 2013, down from 8.4% in 2012, but increased again to 7.7% in 2014, and nearly doubled in 2015 to 13.6%. The ratio then gradually increase, reaching 15% in 2017, the highest level over the reference period. In 2018, the trend changed to the opposite and NPLs share declined again to 12.4%.

NPLs for all firms have seen a more modest increase, peaking to 5.4% in 2010, and then continuously falling to a low of 4.3% in 2013. The share then grew to 6.9% in 2016. SME NPLs as a share total NPLs have grown from 27.7% in 2009 to a staggering 42.9% in 2011, adding to the reluctance of banks to provide loans to SMEs.

In the following years, this share declined from 42.1% in 2012 to 30.1% in 2014, only to grow to 39.7% in 2015. It then steadily decreased to reach 32% in 2017 and 25% in 2018.

Government policy response

The Ministry for Economic Development implements two main programmes of financial support for SMEs.

The first programme includes the co-financing of regional expenses geared towards the creation of special infrastructures for SME (such as business incubators, guarantee funds, micro-financing organizations, technology and industrial parks, business development centres, centres for export support, etc.). The share of federal funds can reach 95%, depending on the financial strength of the region.

In the second half of 2017, a second programme was launched. Under this programme, interest rates on commercial bank loans to SMEs are subsidised. Loans for projects in priority sectors are granted with a maturity of up to 10 years.

Special sectoral programmes to support SMEs are also being implemented. The Ministry of Agriculture finances infrastructure and provides subsidies to SMEs in the agricultural sector. Specialised public funds and corporations provide financial support to innovative and export-oriented SMEs.

The main government institute for SMEs support is the Federal Corporation on SME Development. It was established for the coordination the different types of SME support (including non-financial support). It provides guarantees for bank loans, allows them to become suppliers of the largest companies, and provides information and marketing support.

The Corporation provided guarantees for RUB 140.9 billion in 2017 and RUB 146.4 billion in 2018, together with its subsidiary SME Banks and regional guarantee organisations. It thus supported RUB 253 billion worth of loans in 2017 and RUB 361 billion in 2018.

To facilitate the role of SMEs as suppliers of the largest companies, the Government of the Russian Federation set a 15% quota for SMEs for the procurement of large companies with state ownership. As a result, the volume of purchases of state-owned companies from SMEs increased more than twofold from 2016 to 2018 and amounted to about RUB 3.3 trillion.

The increase in the volume and number of state SME support measures was offset by the strengthening of the tax burden and more strict regulation. In the end of 2018, the VAT rate was raised (from 18% to 20%) for the first time in 14 years. Moreover, the number of SME accounts blocked by banks on anti-laundering grounds increased sharply. According to experts, up to 20% of SMEs clients faced this problem in 2018.

Figure 38.1. Trends in SME and entrepreneurship finance in the Russian Federation

Source: See table 38.4

 StatLink https://doi.org/10.1787/888934117744

Table 38.4. Definitions and sources of indicators for the Russian Federation’s scoreboard
Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Portfolio of SME loans, as at the year-end	Bank of Russia
Outstanding business loans, total	Portfolio of total business loans, as at the year-end	Bank of Russia
New business lending, total	Amount of new business loans are granted during the year	Bank of Russia
New business lending, SMEs	Amount of new loans for SMEs are granted during the year	Bank of Russia
Government loan guarantees, SMEs	Amount of new guarantees are granted during the year	Federal Corporation for the Development of Small and Medium Enterprises (SME Corporation)
Government guaranteed loans, SMEs	Amount of new loans for SMEs are granted during the year	Federal Corporation for the Development of Small and Medium Enterprises (SME Corporation)
Non-performing loans, total	Non-performing loans out of total business loans, as at the year-end	Bank of Russia
Non-performing loans, SMEs	Non-performing loans out of total SMEs loans, as at the year-end	Bank of Russia
Interest rate, SMEs	Weighted average interest rate on RUR loans longer than one year, issued in December	Bank of Russia
Interest rate, large firms	Weighted average interest rate on RUR loans longer than one year, issued in December	Bank of Russia
Non-bank finance
Venture and growth capital	Total capital of VC and PE funds	Russian Venture Capital Association (RVCA)
Leasing and hire purchases	Leasing portfolio, as at the year-end	Rating Agency RAEX («Expert RA»)
Factoring and invoice discounting	Factoring volume	Rating Agency RAEX («Expert RA»)

References

Bank of Russia http://www.cbr.ru/Eng/statistics/?PrtId=pdko

Rating Agency RAEX («Expert RA») https://raexpert.ru/docbank/b6f/852/b9f/22d2762b201762c0fca8c9a.pdf

Russian Venture Capital Association (RVCA) http://www.rvca.ru/eng/resource/library/rvca-yearbook/

State Tax Administration https://ofd.nalog.ru/

Federal Corporation for the Development of Small and Medium Enterprises (SME Corporation) https://corpmsp.ru