New Strategies to Finance Small Enterprises in Russia

21 Pages Posted: 16 Apr 2003

See all articles by Franz Hubert

Franz Hubert

Humboldt University of Berlin - Faculty of Business

Astrid Matthey

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

Date Written: January 2003

Abstract

Restricted access to finance is often stated as one of the main obstacles to the development of the SME sector in Russia. In this paper, we propose a new lending strategy that allows private banks to profitably increase financing of this sector in spite of being at a disadvantage compared to the state owned Sberbank. By building a reputation for tough liquidation in cases of financial distress private banks can overcome information asymmetries by self selection. However, this strategy can only work if (i) bankruptcy law allows for easy liquidation, (ii) the banking industry can sustain positive profit margins, and (iii) interest rates are not too high.

Keywords: small business lending, asymmetric information, reputation, transition

JEL Classification: G33, G21

Suggested Citation

Hubert, Franz and Matthey, Astrid, New Strategies to Finance Small Enterprises in Russia (January 2003). Available at SSRN: https://ssrn.com/abstract=372080 or http://dx.doi.org/10.2139/ssrn.372080

Franz Hubert

Humboldt University of Berlin - Faculty of Business ( email )

Berlin, D-10178
Germany
030-2093 5664 (Phone)
030-2093 5666 (Fax)

Astrid Matthey (Contact Author)

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

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