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Knights of the Vine RUSSIA


Banking on Russian Women
Text Yelena Biberman

n a country where men are still the dominant players in both politics and business, the idea of starting a women’s bank may not immediately open hearts, minds, and wallets. After all, most of the money in Russia is concentrated in the hands of the “stronger sex,” and women are left to compete more in the dating arena than in the corporate world.

But it is not the men that will take Russia to its next level of economic development; it is the women, argues Tatiana Gvilava, director of the Russian-Arab Business Council, adviser to acting president of the Russian Chamber of Commerce and Industry Yevgeny Primakov, and president of the All-Russian Public Organization of Businesswomen. Men may have been good at making thousands of Russians mind-bogglingly rich, but it is the women who will bring millions of Russians out of poverty.

Gvilava’s idea for a Russian bank designed exclusively for women has a counter-intuitive origin as well: The Russian “Renaissance woman” was inspired by what she has witnessed in Saudi Arabia.

Saudi Arabia has had women’s banks for nearly three decades now. These banks reflect both the country’s conservative attitudes toward women and Saudi women’s increasing wealth. Shariah law has for centuries allowed women to take control of their inheritances, and with the number of businesswomen on the rise, they are harvesting their own earnings as well.

At the same time, women who associate with unrelated men over business matters are still frowned upon in Saudi Arabia, which has made it difficult for women to manage their money without interference from male family members. The femalesonly banks were able to take advantage of this combination of religious, cultural, and financial circumstances, and are now blossoming in the Gulf region.

If the Saudi women can do it, so can the Russian women, Gvilava thought to herself. And what better time for them to start?

“Every year, the number of enterprises headed by women increases by 17 percent. Russian women are very active in opening small and medium-sized businesses. They bring together and engage those around them – their families, friends. In doing so, they also teach their children the value of hard work. It is small and medium-sized enterprises that hold our country together,” Gvilava describes.

“We can’t take the Saudi Arabia example in its entirety, however, because that bank works according to Shariah law,” Gvilava adds. “Still, in London, 204 banks based on Shariah law have opened and give out credit mostly to small and medium-sized enterprises. So, we are also studying the British experience with these banks.”

“The Saudi Arabian case is not as much a model as it is an example of how we can serve women,” explains Vera Veselova, vice president of the All-Russian Public Organization of Businesswomen, who is working on bringing together an International Women’s Business Council which would help to carry out the project. Veselova reports that in addition to their Arab colleagues, several women in the U.S. and the Czech Republic have expressed interest in joining the venture.

The idea for the project has been up in the air for about a year and is now gaining momentum. “The women in my organization are all friends, and there are those who are involved in banking. This helps us get our idea off the ground, since opening a bank in Russia is not an easy task,” Gvilava says.

Meanwhile, the venture is not without its “carrots,” as Veselova puts it.

“What would a Russian bank aimed at businesswomen gain? Russian women repay their loans in full. I think that they generally don’t like to be in debt. They are responsible and pedantic with their money,” explains Gvilava.

“Men are more socially protected in Russia. When they leave the family, for example, the women keep the children and can’t always rely on men’s help in these matters. This is when women’s instinct for survival kicks in, and they try to do everything possible to feed their children and give them a good life,” Veselova expounds. “For such reasons, women are more financially and socially responsible than men. They pay off their loans nearly 100 percent of the time; they are less likely than men to avoid paying taxes.”

Veselova points out that the project may evolve from a women’s bank to a division in an already established bank offering cheap loans to women. Men would also be welcome to take advantage of the bank’s services, but it would be only the low-income women entrepreneurs who would be able to take out loans at the especially low interest rates.

While the project is still in the works, Veselova says that it is being prepared with the long-term in mind and with plans for inevitable expansion from Moscow to the regions. “It is important for us to take our time to make sure that everything is done professionally,” she says. “After all, we are not a purely feminist organization. We don’t go around waving our hands in the air and screaming that we, women, are being marginalized. That would be the easy way out. It would also be completely unproductive, too, because real and eff ective business relations require time and patience.”

The reasoning for a women’s bank in Russia may be simple enough, but it is an intricate part of a bigger picture.

Despite the rapid global growth of the microfi nance industry over the past 10 years, the United Nations Capital Development Fund estimates that nearly half of the world’s population still does not have adequate access to financial services. In the least developed countries, more than 90 percent of the population lacks access to financial products and services on a sustainable basis, a fact fueling the cycle of poverty.

Over the past six to eight years, Russia has experienced a significant reduction of poverty levels, as the number of Russians living below the national poverty line has fallen from 25 percent to 15 percent. This was due less to eff ective economic policy than economic growth based on favorable oil and gasoline prices, however. And according to the UN Millennium Development Goals (MDG) Monitor, Russia continues to experience serious problems, which include extreme poverty (of up to 5 percent of its population), especially among children; large numbers of “working poor;” and high differentiation in the level of development between over 80 of its regions. “Some [of the Russian regions] compare with European Union countries, and some are as poor as the least-developed countries,” explains MDG Monitor.

At the same time, as the latest European Social Survey findings show, entrepreneurship in Russia is underdeveloped: 95 percent of all Russian workers are hired employees. In all Western European countries, except Denmark and France, hired employees (as opposed to those who are either entrepreneurs, self-employed, or engaged in a family business) make up less than 90 percent. There are also fewer individuals employed in the service sector in Russia. Thus, despite belonging to a “middle-income country” that is also a member of the G8, well over 20 million Russians have all the potential of reaping the benefits of microfinance. And the majority of them are women.

The international community has made instituting and strengthening the domestic financial sectors for “underserved markets” (i.e., rural areas and women) a global priority. For example, the year 2005 was named the official International Year of Microcredit.

The number-one celebrity of the microcredit community is founder of Grameen Bank Muhammad Yunus. This October marks the 25th anniversary of Grameen Bank (literally, “Bank of the Villages” in Bengali), which has by now loaned nearly $7 billion in small sums to over 7 million borrowers. An astounding 98 percent of the loans have been repaid. No less astounding is that 97 percent of the borrowers are women.

Why women? As the Norwegian Nobel Prize Committee explained its decision to award the 2006 Nobel Peace Prize to Yunus and his Grameen Bank: “Microcredit has proved to be an important liberating force in societies where women in particular have to struggle against repressive social and economic conditions. Economic growth and political democracy cannot achieve their full potential unless the female half of humanity participates on an equal footing with the male.”

To overcome its own set of socio-economic challenges, Russia would benefit a great deal by developing the microcredit services market, but this realization has yet to reach the highest echelons. In March, then President-elect Dmitry Medvedev promised to boost Russia’s small businesses in order to overcome the country’s excessive dependency on the energy sector. But, while he proposed “a radical measure” of cracking down on the widespread corruption via “a ban on checks of small businesses by supervising organizations,” he did not address the other part of the equation — the need to make credits available to low-income entrepreneurs for starting a new business or replenishing working capital. This is where government help would be welcome, as banks usually refuse to have anything to do with “micro-clients,” considering them too risky and unprofi table. At the same time, a survey conducted several years ago by the Association of Regional Banks has shown that only one in three banks is ready to credit small businesses.

There are currently 1.1 million small enterprises in Russia. In 2007, they employed some 10 million people. The annual employment gain in small business accounts for 3-4 percent, which translates into 300,000-400,000 new jobs every year. Meanwhile, firms employing less than 100 people account for only 10 to 15 percent of Russia’s gross domestic product.

According to the Russian government’s estimations, trade and services are the most widespread sectors in small business — together accounting for more than 72 percent of turnover. Industry and construction account for 9 percent and 5.4 percent, respectively. The turnover of small agricultural enterprises and farms accounts for 0.7 percent and 0.9 percent, respectively.

The Russian government appears to have realized that cheap loans are necessary to support small businesses but, so far, has limited its attention to the agricultural sector alone. In March, Agriculture Minister Alexei Gordeyev spoke out about the need for Russian farmers to have access to preferential loans. Today, only one in 10 farmers has access to cheap loans, he said at a meeting of AKKOR, an association of private farmers and agricultural cooperatives, and stressed that the total loan amount should be boosted fivefold. Gordeyev also said that all agricultural markets should be dominated by small businesses.

But even the government’s support of farmers is not without its warts. “The government is saying that farmers can now get cheap loans, but we don’t see many farmers running to get these loans,” says Veselova. “This is due to the ‘human factor’ in such matters, whereby unscrupulous bankers modify the terms of the loans in their own favor. So, for example, instead of a 10 percent interest rate, which was promised to them, farmers are asked to pay 15 percent.”

There is another problem that potential Russian small business entrepreneurs face — geography. According to Alexander Ioffe, president of the Russian Association of Small and Medium Enterprises and adviser to the mayor of Moscow, small business is highly concentrated in Moscow and St. Petersburg. Twenty percent of all Russian small businesses are registered in Moscow, he said. This fact speaks of the need to focus particularly on creating conditions favorable to small business development in the regions, where the majority of the Russian poor are concentrated.

Post-Soviet Russia has experienced a microcredit push, but not a boom. The first major microcredit institution, a nonbanking deposit-and-credit organization, appeared in Russia in 1998 after two Russian women heard about the idea of a microfi nance network at the Nairobi Conference of Women’s World Banking in 1995 and brought it to Russia. “I realized that this market niche in the country is empty but has outstanding growth potential,” Women’s Microfi nance Network (WMN) co-founder Diana Medman explained to Moscow News in 2005. “In Russia, business has been developing from the top, while we should begin from the bottom: We have a very talented, economically active population. If it is given real assistance, altogether diff erent results can be obtained.”

According to the Russian Microfi nance Center, there are now more than 500 organizations offering microfi nance services to support the development of small and medium-sized businesses across Russia. At the same time, the SME Resource Center reports that of the 6 million registered small businesses, approximately 2.5 million are in need of microcredit. The resource center also estimates that the size of the microfinance market of individual entrepreneurs and companies (not taking into account consumer loans) is roughly $4 billion. But the existing microfi nance institutions are meeting only 5 percent of the current demand.

On November 19-21 the Russian Microfi nance Center and the National Association of Microfinance Market Stakeholders are hosting a national conference in St. Petersburg entitled “Microfinance in Russia: New Technologies of Success.”

There are four different types of organizations active on the microfi nance market in Russia: credit cooperatives, regional and municipal support funds for small businesses, private support funds for small businesses, and international microfinance institutions and specialized banks. If successful, Gvilava’s women’s bank would fall into the fourth category

“When we help small businesses led by women, we get double, triple the rewards,” says Veselova. “Throughout the years I have witnessed that many Russian women involved in small businesses are motivated not only by increasing the well-being of all members of their families, but of their communities as well – to do something not just for their wallets but also ‘for their souls.’”

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