Busse Spencer on Buyske, 'Banking on Small Business: Microfinance in Contemporary Russia'
Gail Buyske. Banking on Small Business: Microfinance in Contemporary Russia. Ithaca: Cornell University Press, 2007. 240 pp. $35.00 (cloth), ISBN 978-0-8014-4578-1.
Reviewed by Sarah Busse Spencer (Department of Sociology and Anthropology, The College of New Jersey) Published on H-Soyuz (April, 2008)
An Insider Promotes Russian-Style Microfinance
Though scholarly works often reflect the personal biography of the author, this is particularly true for this book, Banking on Small Business. Gail Buyske worked as deputy director of Chase Manhattan Bank's Soviet and Eastern European Division in the early 1990s, before completing a mid-career Ph.D. on financial sector development in post-Soviet economies. This expertise is most apparent in her discussion of banking in post-Soviet Russia in chapter 3, perhaps the greatest strength of the book. Because of her experience, Buyske was asked to serve on the board of directors of the Russian Small Business Credit Bank (Bank Kreditovaniya Malogo Biznesa, or KMB) in 1999. This book arises from Buyske's experience chairing KMB's board for six years. Though clearly written for an audience not specializing in Russia, Banking on Small Business laudably manages to avoid most of the exaggeration or oversimplification of the effect of the Soviet past that characterizes many books aimed at a general audience. Furthermore, because Buyske discusses the specialized topics of banking and microfinance, and in particular because of her unique access to KMB, even readers with extensive Russian studies background can learn much from this book.
Given the precarious state of the post-Soviet Russian financial sector, it is somewhat surprising that a bank which started in 1999 still operates. KMB grew out of the Russia Small Business Fund, a program that the European Bank for Reconstruction and Development (EBRD) launched in 1993. Buyske cites the 1998 economic crisis as the impetus for the creation of KMB. In early 1999, both the European Union and the Group of 7 had pledged to co-contribute funds with EBRD for the establishment of KMB; later investors included the Soros Economic Development Fund (SEDF), reporting directly to George Soros, and two commercial investment banks. KMB started with twelve million dollars in loans and generated new loans worth forty-four million dollars by the end of 2000. Its initial loan cap was five thousand dollars in 1999, but by 2005 it was allowing loans up to fifty thousand dollars, expanding with the growth in size of its repeat clients. Loan applications were approved in person, often with a home visit by a loan officer, and tangible goods, such as televisions, were accepted as initial collateral. The "Express Micro loan" product, which KMB introduced in 2002, has been especially popular; it offers same-day turnaround and no collateral, and was initially a one thousand dollar loan and has now increased to ten thousand dollars (p. 189). Despite a fraud scandal in 2002, the bank has survived, and it flourishes in the environment of arcane legal regulation and widespread corruption that is contemporary Russia. Part of the bank's success, Buyske argues, is that it does not distinguish between microfinance (usually seen as a development activity) and loans to small businesses (typically construed as a commercial activity, but one that operates across the continuum of financial services to entrepreneurs and small businesses). By 2005, KMB held 33,680 loans, with an average loan size of over nine thousand dollars. Having become the largest bank for micro and small enterprises (MSE) in the former Soviet Union, and one of the largest non-state MSE lenders in the world, KMB has also become the first bank for MSE in the former Soviet Union to attract a commercial investor, Banca Intesa, which agreed in 2005 to buy 75 percent of the bank.
In this book, Buyske places the experience of KMB in the context of three themes: the global context of microfinance, conditions faced by Russian entrepreneurs, and banking in Russia. Buyske briefly surveys the present state of microfinance in the world as a context for the situation in Russia and also as a way to highlight what other countries can learn from the Russian experience. In particular, as Buyske notes, microfinance has traditionally been seen as a development tool utilized by governmental or nonprofit organizations rather than an activity of commercial banks. In Russia, in contrast, microlending is seen as one more profitable product of banks and has never been seen as a charitable activity for the poor. Buyske shows from this experience that microfinance can be used as a tool for economic growth, and argues for increased involvement in microfinance by the commercial sector worldwide. Those familiar with microfinance, perhaps associating it with twenty dollar loans by Bangladesh's Grameen Bank, might be surprised at the high loan amounts involved at KMB. However, Buyske defends the loan structure at KMB, arguing that "regardless of size, the characteristics of the borrowers are the same: they are struggling entrepreneurs in the informal economy who are not being served by the formal financial sector" (p. 166).
Chapter 2 addresses many of the challenges Russian entrepreneurs have faced in Russia, from the Soviet prohibition on "speculation," to the need for a krysha (roof or mafia-style protection) and the interference of officials or burdensome registration. Her discussion of entrepreneurship takes a macro approach; she describes the overall growth of the field, with only an occasional vignette, such as might be found in a business text, as an illustration. Buyske's approach throughout is unabashedly positive, emphasizing the growth of the small business sector and the rise in numbers of entrepreneurs despite these difficulties. She stresses their "positive evolution," "despite impediments that are almost unimaginable" (pp. 98, 100).
This uniformly positive presentation carries over to Buyske's description of the growth of KMB in chapter 4, clearly illustrating both the advantages and disadvantages of an insider's account. While she provides details only someone in her position would know, she also has a tendency to present challenges and setbacks that KMB faced in only a positive light. One wonders whether readers might not benefit from a less rosy presentation of events or situations faced by the bank. Readers with experience in Russia might wish that Buyske had taken more time to give details of regional variation in entrepreneurship, banking, and microfinance. She mentions microfinance lending in Nizhni Novgorod, but otherwise the descriptions of KMB and the financial climate are not grounded in specific geographical locations.
The strongest section of the book is the discussion of banking in Russia, from the Soviet period through various stages in the post-Soviet era, in chapter 3. Buyske does a remarkable job of explaining banking and finance to a general readership. However, in some sections, and again in the chapter describing the history and operation of KMB, the discussion becomes quite technical and somewhat difficult to follow for those without a background in finance or banking. Adding an appendix showing the cities in which KMB has operated, with the year a branch was first opened and the number of clients served, would have improved the book tremendously. Buyske occasionally assumes that readers interested in microfinance understand basic financial concepts, or are familiar with technical terms, for example, the term "greenfield bank," which she uses but never defines (p. 32).
Readers looking for an ethnographic, thick description of entrepreneurship or microfinance clients will not find it in this book. Economists and their fellow travelers will find Buyske's macro approach familiar and her expertise invaluable in making sense of Russia's meandering path from socialism. Readers with interests in microfinance will find Buyske's perspective a useful contribution to the global debate about the role and use of microfinance for poverty alleviation and economic growth. This book is essential for any reader wishing a better understanding of the Russian banking system, the macro context of entrepreneurship in Russia, and the unique perspective on the first, and hopefully not last, bank in Russia dedicated to entrepreneurs and small businesses.
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