Defining Microfinance Creatively in Russia
In August 2010, several internet-based media in Russia, including a number of very popular ones, published information about a company called AktivDen’gi (Active Money). The company, established in May 2009, claimed to work in nine cities in Russia through over 70 outlets located primarily in supermarkets and trade centers, disbursing loans for 5 to 15 days at 2% daily – 730% p.a. In their view, they were “creatively developing the ideas of Muhammad Yunus” and identified themselves with microfinance. ActiveMoney also made claims to efficiency and transparency – saying they could disburse loans in 10-15 minutes, requiring minimum documentation, and fully disclosing the interest rate. They also claimed to have half a million clients after six months of operations.
Microfinance market players in Russia were somewhat taken aback at the information, and wanted to find out more about ActiveMoney. It turned out, however, that the company had very few tiny outlets, and the level of their lending activities was minimal – it was unlikely that they served as many customers as they claimed. But how come the company that was so tiny, if at all real, had garnered so much publicity? One theory was that it was in fact a campaign initiated by one of Russia’s retail banks to discredit microfinance – just several weeks after the President approved the Federal Law “On Microfinance Activity and Microfinance Organizations.”
Feeling threatened by competition from MFIs, this theory goes, the bank was combatting the competitive inroads Russian MFIs are making into the market and scaring off investors potentially interested in investing in microfinance organizations. Now the commotion has died down, there are still a number of open questions left after the incident: What makes microfinance different, given that high interest rates have always been part of the picture? At what level do interest rates become “too high” (the complexity of this issue is discussed in CGAP’s Occasional Paper The New Moneylenders: Are the Poor Being Exploited by High Microcredit Interest Rates? by Richard Rosenberg, Adrian Gonzalez, and Sushma Narain)? And how should the microfinance community in Russia react to such an attempt at discrediting what they do?