More millionaires please

by Tom Washington at 02/06/2011 16:42 (“The Moscow news”)

Millionaires are more closely connected to the economic development of the country. Vyacheslav Bobkov, head of the National Living Standards Center, told Kommersant that Russian millionaires are generally those who have built up a successful business in a competitive environment, while billionaires mostly live off the country’s mineral resources, rental incomes or monopolies.

The shortage of millionaires relative to billionaires poses a social and an economic problem. The top dogs “leech” off natural resources and monopolies and, unlike their slightly poorer compatriots, are cut off “from the rules of the game, from the development of the country,” says Bobkov.

While most of the wealth is concentrated in Moscow, meaning that wealth inequality is negligible outside the capital, a dearth of millionaires strips Russia of the benefits a rich country would normally enjoy, such as well-developed markets and technology.

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Let’s cooperate

by Oleg Nikishenkov at 24/10/2011 (“The Moscow news”)

Faced with tough loan conditions from banks, a growing number of Russians are turning back to a Soviet-era source of finance: the credit cooperative.

According to a survey published last week, 12 percent of Russians would never again take out a bank loan.

Among the key reasons for turning away from banks, the National Agency of Financial Studies cited high lending rates, overpayments and unfavorable credit terms.

This growing unease is reflected in the official figures, too. According to Central Bank data, the rate of overdue loans by individuals had reached 7 percent by the end of last year.

Higher rates

Perhaps as a response, more people are turning to informal, non-bank sources of finance – including friends, community and other lenders.

Claudia Volokho, head of the Russian Credit league of co-operatives, said the credit co-ops are currently organizing themselves into a lobby group.

Russian Credit unites 132 of the country’s biggest credit co-operatives, and boasts 160,000 individual members.

Rural communities

Volokho said the cooperatives are getting more popular, particularly in small towns and rural communities where members know each other well.

“It’s also the best tool for credit in small villages, as banks have no interest in opening their branches there,” Volokho said.

Unlike co-operatives, mutual benefit societies do not charge interest on loans, and don’t pay out interest to depositors either. As a result, they’re not profitable for business – but are being taken up by trade unions.

Trade unions

Vladimir Ulyanov, who heads the Moscow public sector workers’ union, said his union’s mutual benefit society still follows the rules set down in 1923, when the first Soviet mutual benefit societies appeared under revolutionary leader Vladimir Lenin.

The trade union’s rules require members to deposit a minimum of 0.5 percent of their salary into the mutual benefit society if they wish to take out an interest-free loan. The maximum loan from the trade union is 150,000 rubles ($5,000).

Not for profit

Credit co-ops make sense only at organizations and companies with a lot of employees, said Mikhail Nikitin, a credit analyst at Renaissance Capital.

“It reminds me of a subsidized state loan. The balance of interests between the lender and the borrower is unclear,” Nikitin said. “Banks offer a better rate of return for depositors than credit co-ops.”

The mutual society’s rules give priority to union members in the most need, Ulyanov said.

Working it out

If a member is unable to pay back the loan, the union tries to find another solution before taking that person to court, he added.

“The borrower has to pay the loan back within a year. We work out first why this person isn’t able to pay before taking legal action,” he said.

Urgent purchases

“People take this money when they run out of cash and need to make an urgent purchase, like buying clothes for the kids, or to pay the dentist,” she said.

The current law on credit cooperatives came into force only last month, after the authorities spent two years working out the rules. Regulators feared that credit cooperatives could potentially become pyramid schemes.

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