In more than three years working with Russian MFIs, the Russian Microfinance Center has identified limited loan funding as a significant impediment to growth in the microfinance sector. Specifically, the overall demand for microfinance services amounts to 233 billion rubles (US$ 7.7 billion) and the current supply meets only about 15% of the demand.

The Russian microfinance organizations are prudent and profitable structures. The average portfolio at risk is well below 4% and the operational self-sustainability is averaging at 127%. Nearly 50% of all MFIs have delinquency rates less than 2.7%. The current microfinance client base comprises between 160,000 and 180,000 customers. Individual entrepreneurs were the biggest group served by MFIs making up 80% of the client base.

Centurion Capital will provide credit to microfinance institutions (MFIs) in Russia for on-lending to micro-enterprises and entrepreneurs. Centurion’s loans to MFIs will be primarily collateralized by the MFIs’ loan portfolios. However, the Fund will also accept other types of collateral such as bank guarantees, regional government guarantees, and real estate. All credit facilities will be denominated in rubles insofar as the Fund, itself, will be a Russian entity, and its MFI clients are not capable of accepting significant exchange rate risk in the absence of an economical hedge instrument.

From inception, Centurion Capital will be seeking to create value for its customers by extending them longer tenors than are currently available on the market. In addition, the Fund will target small and medium size MFIs that typically have difficulty accessing commercial credits from other financial institutions. Thus, Centurion Capital will offer interest rates above what commercial banks would charge.

Centurion would stick to a relatively conservative debt-to-equity ratio and constantly maintain a minimum cash reserve equal to 10% of the loan portfolio in order to assure a fair level of liquidity.