EBRD promotes small business lending on Russia’s fringes

Orient Express Bank gets 2 billion Roubles in medium-term loans

The EBRD is helping Russian small and micro enterprises (MSME) to access longer-term funding by making a three-year local currency loan of 1.7 billion Roubles (equivalent to EUR 42 million) to Russia’s Orient Express Bank (OEB) for on-lending to clients in this sector.

The loan is being made within the framework of the EBRD’s Russian Small Business Fund (RSBF), the country’s oldest and most successful lending programme for small businesses which has over the last 18 years advanced over 720,000 loans for a cumulative value of over 11 billion USD.

An additional loan of 300 million roubles (equivalent to EUR 7.4 million) is earmarked for investment in energy efficiency projects by such businesses under the EBRD’s Russian Sustainable Energy and Carbon Finance Facility.

Orient Express Bank, registered in Khabarovsk, the capital of huge region bordering China, is the private sector bank with the third largest network of outlets in Russia. It is active in 90 percent of the countries’ regions -- with a presence in 1,200 urban centres and a particular focus on smaller towns and second-tier cities.

As measured by the amount of retail deposits and consumer loans, it ranks among Russia’s top 10 banks and ranks among the country’s top-30 banks in terms of  assets.

The bank was founded in 1991 as a subsidiary of a state-owned bank, but was taken over in 2005 by a group of private investors who within several years succeeded in turning an inconspicuous regional lender into a nation-wide financial institution..

OEB shareholders are institutional investors and include IFC (International Finance Corporation), the private sector arm of the World Bank (14 percent) as well as Russia-focused private equity funds Baring Vostok Capital Partners (30 percent) and Russia Partners (seven percent) and private individuals. 

The small business sector holds the key to the development of a market economy in Russia and, therefore, to employment levels. It is at present already estimated to account for 20 percent of Russia’s labour force.

There are sizeable differences between regions regarding access to finance, which remains a significant issue for the sector. This project aims to address the problem by pushing into under-served regions and small towns on Russia’s geographic fringes, particularly in Siberia and the Russian Far East..

In Russia, four times more energy is used to produce economic output than in the EU. It is this very intensive usage that needs to be rationalised. There is a growing demand for sustainable energy financing in the MSME sector but such firms typically have limited or no access to longer-term funding.

In addition, many such firms lack the technical capacity to identify how they could profitably invest in the rational use of energy. The EBRD not only makes longer-term funding available to lenders but also offers borrowers expert advice from consultants on how to lower production costs through energy savings.