My first visit was in 1982. It was totally by chance. I had studied German, but the bank I was working for wouldn’t let me go to Frankfurt, so I decided to take a course in a particular language. This was how my interest in Russian began. I was sent periodically on business trips to Russia. In 1989, I signed an agreement with a bank in the Soviet Union. Talks had begun about a possible break-up of the USSR, to such an extent that the Ukrainian division of the bank wanted me to go to Kiev to sign a similar agreement. The two republics were acting independently, something was happening, and the internal balance of the Soviet Union was about to change.
Having lived in Russia permanently since 1997, I can tell you that there is no comparison with how things used to be. Both Moscow and the other regions have changed a great deal. This change is visible everywhere. From a banking perspective, there were over 1,600 banks during the 90s, all at war with one another. Opening a current account in another private bank was seen as a betrayal. Sberbank, for example, having a state guarantee, saws no point in creating insurance for depositors, an essential mechanism to ensure depositors are reimbursed, should the bank go bankrupt.
Gradually, the idea that banks are ‘special’ companies began to take hold. As President Putin said, they are the circulatory system of a country; although in competition with one another, they must follow specific regulations. Even in Italy, for example, until a certain period, it was thought that banks could not go bankrupt, since they had always been saved, but recently deposit insurance has become essential.
Over the last few years, the banking system in the Russian Federation has experienced radical change and technological modernisation, therefore Russian banks are often extremely modern in terms of services. But this is not all – the ethical approach has also changed.
The banking world is now properly regulated. Economic growth was continuous until 2014, followed by a period of stagnation. The Central Bank was forced to act with great prudence, including because of sanctions; however, despite this, the country is growing. Russia is taking action and always manages to handle economic turmoil.
UBI Banca was established on 01/04/2007 and immediately afterwards also in Russia. I personally joined in December that year. Both for Sanpaolo, in the past, and UBI now, I have headed the Representative Office of the Institution for the Russian Federation and the entire CIS area. UBI’s main business is trade finance – import-export finance. It has been fundamental to draw on the professional and interpersonal relationships I have established with banks over the years to channel transactions . In addition, UBI provides support activities for those who wish to invest and lately, the Group has begun opening up to major Russian corporate clients as well.
The reason why it was important for me to join Mikro Kapital is that I believe there is space for finance which does not seek to impose a ‘foreign’ banking model. The risk is that foreign companies will be expensive and will not know the local market, whereas Russian banks are particularly good at playing the game. Competing with them is no easy task. I see no future for foreign financial companies unless they find a niche market, where they can help and cooperate with Russian banks. I can clearly see the financing and production activities that Russian banks do not provide, since they do not wish to assume the risks – so-called ‘project financing’, which nevertheless often excludes smaller parties. It is therefore necessary to use other funds from parties with greater resources available and manage to finance small, highly profitable projects.
The banks in Russia have handled the situation very well, working remotely without any interruptions or problems. We are still working remotely now, while we plan to gradually return to the office. Pre-COVID, the chance of investing in Russia was viewed with some apprehension, whereas now there is greater interest. Sanctions are now also imposed on other countries. We now find ourselves in a logic of global problems, and opportunities are found everywhere, like in Russia, with a huge market available. I expect that, in the near future, interest will grow once again in Russia as an investment target, as has been the case in China over the last few years. Moreover, Russia is also close to Italy. Entrepreneurs are no longer convinced that business in Italy is as strong as they believed and are starting to consider positioning themselves elsewhere. I have noticed a good deal more interest since April than during the last few years.
Russia has both the good and bad luck to have a GDP closely linked to raw materials. Unfortunately, this prevents development in other sectors. It is a country where SMEs’ contribution to GDP is only 23%, compared with 80% in Italy. A great deal has been done over the years to promote the development of entrepreneurship and small enterprises. There are over 6.2 million micro, small and medium-sized enterprises in Russia (as of May 2019), employing around 26.3% of the workforce. The recent rise in the price of a barrel of oil, which has gone back above the $40 threshold, has made it possible to cover the country’s budgetary requirements. It is a primitive economy, but its advantage is that, as the oil price recovers, the economy is relaunched. The number of small and medium-sized enterprises in the services sector is growing considerably, so I do not see any issues for the recovery. The government of this former-Soviet country is very familiar with which companies to finance.
This is an interesting topic. I think that, between protectionism and globalisation, the truth lies somewhere in the middle. On the one hand, we risk not having enough products, such as the case of masks in Italy. The Soviet Union produced 80% of the necessary medicines, while now Russia only produces 20%. It is necessary to rethink things and start to produce things domestically once more. What is required is a return to localism, while not forgetting that globalisation is an unstoppable process. We cannot envisage producing something in Turin and preventing someone from buying the same item from China. Russia has everything to gain from remaining the bridge between Europe and Asia. Central Asian countries tend to be more attracted to the Russians than to the Chinese and this helps to preserve Russia’s strong and stable position.
I think it has always been a useful tool, since banks have limitations, first and foremost in assuming certain risks, and some operations that could be performed by banks familiar with the companies located nearby are now impossible. This worked in the past because we were very local. We knew the potential and the people, and we had developed them while assuming risks which are now impractical for banks. Since Mikro Kapital is not a bank, it has been able to adopt a traditional model and export it around the world, to the benefit of small and medium-sized enterprises. Microfinance represents a return to the real economy, which has now been forgotten by many major financial institutions.
In my almost 40 years of experience, I have observed that banks have almost never changed their products. They have used computers to speed up their processes but have remained static as regards the use of digitalisation in the intrinsic creation of new products. At least, this was the case until the arrival of Fintech, a niche in the financial system. This shook things up, and banks understood that the time to change had arrived. The world of savings is changing. Customers now no longer want to sign documents and visit the branch; they want a bank open 24 hours, with flexible services, they want to invest in synthetic products, where the bank assumes the risks and, thanks to its experience, also guarantees a return, by no longer merely passing the risk on to the customer and only checking whether they have been adequately informed. Until just a few years ago, bank websites were more outmoded than those of commercial companies. They were showcase websites, without any interaction or digital services. We now need to imagine how our grandchildren will live, what their needs and the future of the world of work and entrepreneurship will be. Honestly, there is still work to be done, but this is unquestionably the future. When I look at the Russian market, all banks now offer mobile services which, when compared with other European countries, are very advanced. To give you just one example, in Italy we talk about 1-day bank transfers; in Russia, you can transfer money onto payment cards instantaneously. Speed is a stimulus for new businesses and services. Russian banks are well aware of this and have demonstrated a certain modernity, while Italian ones, in some cases, have waited for decisions at European level and/or the effects of COVID-19.
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