LIST OF ACRONYMS AND ABBREVIATIONS
CHAPTER 2: SMEs IN THE GLOBAL WORLD
2.6 SME POLICIES AND STRATEGIES IN SELECTED COUNTRIES
2.6.3 Russia
2.6.3.1 Laws and public institutions
The Russian Federation has put in place laws and institutions as part of its policies and strategies for addressing the challenges confronting SMEs and in order to promote the development of the sector. The Russian Federation’s support for SMEs mainly focuses on manufacturing companies that are focused on innovation and technology (EIB, 2013). Federal Law 88-FZ on “State support for small businesses” was enacted in 1995 (EIB, 2013), and defines the framework of state support for small businesses, the regulations for small businesses, and the definition and characteristics of small businesses (EIB, 2013). Federal Law 209-FZ of July 2007, which replaced 88-FZ, focuses on the development of SMEs in the Russian Federation (Chernukha, 2009; EIB, 2013). The law introduced the terms, “medium entrepreneurship”, “microenterprises” and “infrastructure for SME support”, and explained the various ways in which SMEs could be supported (EIB, 2013). The policy aims to develop
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SMEs for the purpose of creating a competitive environment in the Russian Federation, promoting a suitable milieu for the growth of SMEs, ensuring the competitiveness of SMEs, providing assistance to SMEs, and increasing the number of SMEs (Chernukha, 2009).
The Russian Federation provides assistance to SMEs through financial support, special tax regimes, the renting and acquiring of property under favourable conditions, and involving SMEs in the government procurement process (EIB, 2013). The Russian Agency for the Support of Small and Medium-sized Businesses (RASSME) was established in 1992 for the purpose of providing support for SMEs (RASSME, 2012). This agency has operated with success in the provision of market information, and specialised training and consulting services in every part of Russia. Several programmes involving export, young entrepreneurs, and support infrastructure as well as quality management have been set up by RASSME, and it has also managed to provide support and development to SMEs in terms of their internationalisation.
2.6.3.2 Vnesheconombank
The Vnesheconombank, which was established in 2007, operates according to Federal Law 82-FZ of May 2007 “On the Bank for Development” (Vnesheconombank, 2011; International Development Finance Club (IDFC), 2013). It is a bank which is wholly owned by the Russian Federation, and whose objectives are to promote innovation and industrial development among SMEs and offer financial support for exporting SMEs (IDFC, 2013). The Vnesheconombank has four subsidiary financial institutions with specific functions (Figure 6): the SME Bank (Russian Bank for SME Development), Roseximbank (Eximbank of Russia), VEB Leasing, and VEB Capital (Vnesheconombank, 2011; Wermuth Asset Management, 2011; RASSME, 2012; EIB, 2013). Figure 6 illustrates the Vnesheconombank and its subsidiaries.
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FIGURE 6. VNESHECONOMBANK AND ITS SUBSIDIARIES
(Source: Vnesheconombank, 2011: 3)
2.6.3.3 SME Bank
The SME Bank is a financial intermediary through which SMEs obtain financial support from the Federal Government (EIB, 2013). It is 100 % owned by Vnesheconombank (Vnesheconombank, 2011). The bank provides mid-and long-term funding to SMEs in the manufacturing sector and those involved in innovative and technology-intensive projects (RASSME, 2012; EIB, 2013). The EIB (2013) observes that the SME Bank works with a network of partner banks, leasing and factoring companies and microfinance institutions.
SME Bank loans range from $300 000 to $1.5 million, and usually have interest rates that are 2–3 % below the market rate (RASSME, 2012). The average interest rate is 12.7 % (EIB, 2013). By 2011, 15 000 loans had been provided to SMEs and 108 000 jobs had been created (Vnesheconombank, 2011). By June 2013, approximately €2.3 billion had been made available by the Bank for supporting SMEs (EIB, 2013). The SME Bank conducts on-site and off-site control of partner banks involved in the provision of loans to SMEs. At the beginning of April 2013, the SME Bank started providing guarantees of 50 % of the loan amount (which should not be more than €25 million), which should mature in 2–10 years (EIB, 2013). The maximum amount which can be paid as a guarantee fee is 1.8 % per year (Vnesheconombank, 2011). The SME Bank conducts research to establish the potential and the level of development of SMEs, and identifies product niches and areas in which work needs to be done so as to provide effective support for SMEs in various regions of Russia (Vnesheconombank, 2011). Figure 7 illustrates the financial support for SMEs through the SME Development Bank.
VNESHECONOMBANK
SME BANK (Russia) 100% ownership
ROSEXIMBANK (Russia) 100% ownership
VEB LEASING (Russia) 78.07% ownership
VEB CAPITAL (Russia) 100% ownership
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FIGURE 7. FINANCIAL SUPPORT FOR SMES VIA THE SME DEVELOPMENT BANK
Source: Vnesheconombank (2011: 3)
Vnesheconombank, through the Roseximbank, provides support for the export of SME products (Vnesheconombank, 2011; EIB, 2013). Roseximbank provides financial support for export and pre-export funding facilities (about ₽3 million), which is payable over a period of 14 years (Wermuth Asset Management, 2011). VEB Leasing, a subsidiary of Vnesheconombank, assists SMEs financially by providing leasing products. SMEs receive leasing of high-tech equipment, rolling stock, automobiles, and sea vessels (Wermuth Asset Management, 2011). VEB Capital is involved in the provision of capital for SMEs.
The strategy implemented by the Department for SMEs and the Competition Department of the Ministry for Economic Development focuses on providing support for exporting SMEs through compensating them for some of their costs, such as certification, attending fairs and exhibitions, interest on export credit, and branding grants to exporters who are just starting (RASSME, 2012).
Specialised support infrastructure for export-oriented SMEs was created and developed. A regional centre of the Enterprise Europe Network has been in place in Russia since 2008, and coordinates support for exporting SMEs (Vnesheconombank, 2011; RASSME, 2012). In partnership with the Vnesheconombank, RASSME distributes information on available
Funding
Loans Leasing Guarantees
Vnesheconombank
SME Bank
Partner Banks Leasing
Companies Micro-finance
Institutions
Fundsof Guarantees
Micro, Smalland Medium Enterprises
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opportunities to the regional SMEs (EIB, 2013), and prepares SMEs for international certification requirements (RASSME, 2012), such as ISO, GOST, CE, and many others. The Russian Federation facilitates the participation of SMEs in international business fora (Vnesheconombank, 2011; RASSME, 2012).
The Russian government, through the Vnesheconombank, therefore provides financial support to exporting SMEs. Access to finance has been an obstacle to the development of exporting SMEs, and to address this challenge, the Vnesheconombank co-operates with various international financial institutions and banks to assist SMEs in this regard (Vnesheconombank, 2011; Wermuth Asset Management, 2011; RASSME, 2012). The Bank has signed agreements with various external financial institutions to provide financial support to exporting SMEs through guarantees, letters of credit and currency credit (Vnesheconombank, 2011).
There are also certain guarantee funds made available to various regions so that the regional governments can provide guarantees for SME loans (EIB, 2013). Every year the regions are financed from the National Budget. The regional guarantees do not exceed 70 % of the loan amount (Vnesheconombank, 2011; RASSME, 2012; EIB, 2013). Regional guarantee funds provide guarantees for banks and leasing companies that have signed agreements with the regional governments. When an SME applies to a bank for loan, the bank analyses the application and the accompanying documentation. If the SME is eligible for a loan, the application is sent to the regional guarantee office, where a guarantee is either approved or declined (Vnesheconombank, 2011; EIB, 2013). The activities of the regional governments in respect of the guarantee funds are supervised by the Ministry of Economic Development.