The state of microfinance activity and regulation in Russia

Mehnaz Safavian | Douglas Graham | Claudio Gonzalez-Vega | Dennis Whelan

This article describes some of the difficulties facing Russian MFIs, such as the absence of a legislative framework giving them the right to make loans and accept savings, and high taxation rates. These
challenges are in direct contrast to MFIs operating in most developing countries. The most pressing problem for microfinance activity in Russia is that there is no clear legislative authorization for non-banking
institutions to engage in microfinance activities, and some legal authorities question the right of non-banking institutions to engage in lending activities at all. One of the chief difficulties lies in
the uneven application and enforcement of existing laws by the relevant local enforcement agencies. Different oblasts (administrative regions) interpret the existing legislation in a variety of ways, and
organizations wishing to start a new MFI have to employ lawyers to look into which of a number of different legal forms is preferable in a particular region. Two strategies are proposed: to research into
the best practice model for a framework to regulate MFIs, and to share experience on which is the most appropriate operational model for a given setting. Until MFIs have matured and achieved a greater coverage,
however, it is the wrong time to approach the Moscow Central Bank with a request for a legislative framework.