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Title: Why Business Prefers Microloans Over Traditional Banking
Businesses are increasingly turning to microloans from Microfinance Institutions (MFIs) instead of conventional banks, with a staggering growth of 24% in microloans to businesses in 2024, totaling 129.7 billion rubles as compared to 105.4 billion rubles in 2023. This trend can be attributed to several appealing factors offered by MFIs.
One primary reason is the convenience and speed of obtaining funds. MFIs require less bureaucracy, often allowing online applications, and typically deposit money into accounts within an hour. Olesya Kiselyova, Managing Director of Lime Credit Group, explains, "MFIs are more agile, and when the need for quick capital arises, businesses prefer MFIs."
These microloans are primarily utilized to cover immediate financial obligations, such as large, urgent purchases or equipment repairs. CBR statistics show that 72% of MFI loans to enterprises were used to replenish working capital.
Small and medium-sized businesses (SMEs) represent the majority of clients seeking microloans. With limited working capital and no extensive credit history, SMEs often find MFIs more attractive due to their higher risk appetite and greater flexibility compared to traditional banks. Artem Bykov, General Director of Moneyman, notes that, "Interacting with MFIs is faster and more accessible for startups than banks." In 2024, 75,000 small and medium-sized business entities were clients of MFIs, a 25% increase from the previous year.
Commercial MFIs have eclipsed their state-owned counterparts in issuing microloans to businesses, despite the latter having significantly lower interest rates. Commercial MFIs' rates can exceed 70%, compared to 20% for banks. This impressive growth is due to commercial MFIs' technological sophistication, which enables faster service and superior online functionality. Andrei Boger, Director of Seller Capital, explains, "Entrepreneurs need a lender that can provide quick access to funds, and commercial MFIs provide precisely that."
One hindrance faced by state MFIs is their limited online presence, despite online loans being a rapidly growing sector. In 2024, only 0.8% of loans issued by state MFIs were online, compared to 90.3% by commercial MFIs.
With the proposed increase in the microloan limit from 5 million rubles to 15 million rubles, businesses might see increased access to funding for growth opportunities. Financially, this might be beneficial for businesses, lightening the cost burden of raw materials, equipment, and labor in the current inflationary environment. The expansion of collateral products from MFIs makes secured loans a prominent choice for businesses.
The growing demand for microloans and the favorable market conditions emphasize the need for the state to support the scaling of small businesses. By improving the assessment, approval, and issuance processes, commercial MFIs may cater to larger, more established clients seeking larger loan sums.
Tags: #Business #Loans #Microloans
- In the business world, many entities, especially small and medium-sized, have found microfinance institutions (MFIs) more attractive for their financing needs, preferring microloans over traditional banking, given their speed and agility in providing funds.
- MFIs' appeal lies not only in their speed of service but also in their willingness to lend to businesses with limited working capital and no extensive credit history, a risk that traditional banks may not be willing to take.
- Despite state MFIs having significantly lower interest rates, commercial MFIs have seen impressive growth due to their technological sophistication, which provides a quicker and superior online service experience.
- As microloan limits may increase from 5 million rubles to 15 million rubles, businesses could see expanded access to funds for growth opportunities, potentially benefiting financially in the current inflationary environment, especially with the increased availability of secured loans through MFIs' expanded collateral products.
