In chase of easy money

Government support and informational transparency will help to reduce the cost of credits for small and medium business

After the announcement of Vice-premier Igor Shuvalov about completion of preferential credit program for small and medium-sized enterprises during the meeting of the Russian White House’s «project office», the news about continuation and expansion of the program sounds good for business representatives. However, not all entrepreneurs will obtain the easy money. To reduce the cost of credits in long-term perspective, the joint steps of the Government and private industry are necessary.

«Program 6,5%». The concept of preferential credit program («Program 6,5%»), which is implemented from the end of 2015 by Corporation for the Development of Small and Medium Business in association with 31 authorized banks - is to provide the borrowed funds in the amount from 10 mln RUB to 1 bln RUB at the rate of 10,6% for small business and 9,6% for medium business (at the moment the average rates for small business are amounted to more than 14% and about 13% for medium business). The banks themselves receive refunding in the Central Bank of Russia at the rate of 6,5% per annum. The period of preferential funding is up to three years. Only companies with high-tech and import-substituting projects within eight industries (health care, agriculture, manufacturing, construction, etc.) may obtain preferential credits. About 90% of credits issued by three state-owned banks – VTB, Sberbank and Russian Agricultural Bank.

New sums, additional financing. The program seems to be efficient due to positive opinion of entrepreneurs and bankers. The program turned out to be popular: by February 2017, only one third of the limit (125 bln RUB) approved by the Central Bank remained unselected, and business community was hoping for additional 50 bln RUB; however, on 17 February during the meeting of «project office» Igor Shuvalov announced about completion of a program. According to the Vice-premier, the «Program 6,5%» is an anti-crisis program and it’s time to look for new mechanisms of economic growth. The business community negatively respond to the news, however ten days later, on 27 February during the Investment Forum in Sochi, the Vice-minister Dmitry Medvedev stated about continuation and expansion of the program. Now the preferential credits will be granted at the amount of 5 mln RUB, that will make them available to micro-enterprises. From 1 July the program limit will increase by 50 bln RUB; according to new conditions, the program will affect regional banks, that will allow to reach the maximum number of small and medium-sized enterprises and in case of success during the current year, the preferential credit financing will be prolonged for 12 months.

Informational transparency will reduce the rates. According to market analysts, the decision to extend the «Program 6,5%» is absolutely correct. However, despite the success and efficiency of the program, it is impossible to forget about its stippling and limited terms. Meanwhile companies across all industries are stand in need of credit financing. In fact, the small and medium business deal with the exorbitant and defensive rates. Entrepreneurs point attention at the complexity and duration of obtaining the financing and low bank interest while working with small and medium-sized enterprises. Within such conditions, it is much easier and faster to solicit accounts into micro-enterprise at the rate of 25-30% per annum, than spend time and money in attempt to meet the requirements of major credit organizations. The reason of this is extremely poor quality of credits for small and medium-sized enterprises and high share of loan delinquency. Even using high interest rates, the bank margin can barely cover the credit risks and potential losses from non-repayment of borrowed funds. Efforts, making only by banks, are not enough to reduce the rates in order to improve the quality of credit portfolio. Extremely low informational transparency does not let to make correct evaluation of the potential borrower’s business, increase expenses and time on loan application review (sometimes for months) and, as a result, increase the interest rate, making them exorbitant for entrepreneurs. Under the conditions of extreme privacy, only joint steps of credit institutions and business towards each other will be able to provide the market with easy borrowed funds in long-term perspective.