The Development of Rural Credit Cooperatives in Russia and their Contribution to Regional Development

Author: Thomas Schumann

Organisation: Faculty of Business Administration

Link to Abstract

Abstract

Supplying local businesses with financial services is an important element of regional development. This is also true for Russia – a transition country with a very unique set of economic, social and also political circumstances and conditions. Regional development in Russia typically starts off from the agricultural sector and forestry. To increase local income in the future it will have to be connected to processing, manufacturing and services. The model of cooperative banking was chosen to underpin the supply of financial services in rural areas. It can be stated that it plays e.g. an important role in helping farmers getting loans for the conduct and expansion of their businesses. It also assists rural families in their daily live and in improving their living conditions by issuing consumer loans for durables, repairs of their home but also for marriage, medical treatment and education.

Now, by looking on the near future and then on a midterm and long-term path for cooperative banking structures in rural areas there are as well opportunities and threats. Regional development in Russia will in the next couple of years be strongly dependent on local leadership to make a difference to a predicted ongoing macroeconomic stagnation. On the other side Russia is very open to modern digitalization technologies in the business area.

Both offers chances for rural credit cooperatives to a) further develop their own (smart) business model and – connected with it – to b) play an increasing role in the future local economic development in single Russian regions. For this, a technical assistance (TA) project concept is suggested that also encompasses a renewed cooperation with foreign partners from the credit cooperative and financial sector, respectively. To arrive on this sectoral data from the Bank of Russia is used to look on the situation of rural credit cooperatives in different regions. More in detail, the two-tier system in Vologda Oblast is analyzed and its evolution and business practices are compared with regional cooperative systems in Western Europe.

JEL classification: 016, Q13, Q14, R11, R51, R58