RUSSIAN FINANCIAL CORPORATION

The Russian Financial Corporation (RFC) was established in spring 1993 in accordance with the Presidential Decree and the Russian Government resolution to activate and improve the effectiveness of the investment process in the Russian economy. The tasks of RFC are: — selection, expertise and financing of investment projects using state and Corporation-attracted funds, organization of control over effective use of attracted funds; — attracting investors on a commercial basis, including foreign ones; — providing state guarantees to foreign investors on behalf of the Government; — using foreign credits on behalf of the Government, including their placement on a competitive basis; — issuing securities and working in the securities market.

Currently, RFC has essentially transformed into a holding. It has 'grown' a number of structures — its own insurance company, an investment-oriented bank — "Investkredit", a trading company, consulting firms, a security agency; all this allows providing a sufficiently wide range of services. Along with RFC, which has a controlling stake, the founders of the interbank investment association — the regional development bank "Investkredit" — are about 40 regional banks created in the early 90s on the basis of former regional branches of "Promstroybank USSR". This gives "Investkredit" the third largest correspondent network in Russia. Such a network allows for prompt client payments throughout Russia, obtaining valuable information about investment applicants, essentially checking clients "on site", which is important for project evaluation and implementation. The holding includes a trading company that allows, when necessary, to test on the market the goods that a potential investor would like to produce in Russia in the future. RFC also conducts investment consulting, organizes training of specialists in investment and banking activities, helps develop business plans and investment schemes. Training occurs not only in "market language", but also in the basics of "market thinking", according to which the psychology of business executives changes, a spirit of initiative emerges, and understanding of freedom of maneuver and the framework of enterprise responsibility appears. A major independent task is to teach applicants to adequately present their projects in management language understandable to investors, to bring them to the level of international standards.

RFC is engaged in creating the very market space of investments — with its marketing, information structure, project database, regional branches and clientele. "Custom" work is also carried out: promoting certain projects that sometimes have pilot significance — both in large and small and medium business. The Corporation assists enterprises on the basis of mutual benefit.

Despite the collapse of the stock market, tax pressure and high GKO interest rates, which do not stimulate investment attraction, RFC is dynamically developing and expanding its range of interests. Through RFC's mediation, investments worth several hundred million dollars were attracted to the Russian economy in 1994-1997 — and their value could have been many times higher if the country had greater political and economic stability and a legislative framework ensuring a favorable investment climate, reducing investment risk.

Institutions similar to RFC exist in many developed countries and are actively supported by the state.

The corporation's staff includes several dozen specialists, high-class experts, which ensures mobility and flexibility in setting and solving tasks. At the same time, a number of specialized firms and individual experts capable of solving various specific tasks are involved in active interaction with RFC. RFC has a network of regional branches and representative offices, of which the largest is the St. Petersburg branch, supervising the Northwestern direction. Here, for example, a project has been implemented to create a small civilian seaport "Lomonosov" in the Leningrad region on the former naval base. Among other RFC projects, we can note attracting funds for the development of "Sibnefteprovod", implementing projects for the development of packaging production, creating fiber-optic communications on the October Railway. Projects for the development of small and medium business are unfolding at full speed. For example, recently RFC invested about 100 thousand dollars in the Tver region for the construction of lines for baby food production and other dairy products.

Considering the difficult financial situation of many Russian enterprises that have good investment potential, RFC is developing, with the involvement of its Western partners and regional administrations, a scheme for leasing foreign equipment and machinery. Thus, by agreement with the administration of the Voronezh region, a scheme was developed for leasing agricultural equipment from the USA.

RFC actively works in the securities market, provides comprehensive services to clients, expanding the range and volume of services, and is a dealer of the Central Bank of Russia in the GKO and OFZ market. The status of a state enterprise requires RFC to take a state approach — that is, to work not only in high-yield areas that bring "quick money", but also to work for the future, developing new forms of business — for example, small venture business, which practically does not generate income at the first stage. Thus, on RFC's initiative, the Valdai Venture Fund was created, and an annual competition of innovative projects in small business is held. RFC is an agent of the State Property Ministry for investment expertise. The Corporation organizes and conducts investment forums, conferences and seminars in Russia and abroad, where it presents regional investment programs and conducts project presentations. It organizes information collection in regions, publishes an investment atlas of regions. It participates with its own capital in a number of projects, providing startup financing that ensures the implementation of pilot investment projects. It presents information on the Internet about investment projects, informs potential investment "donors" about projects that could interest them. It stimulates the development of the investment market in cooperation with foreign firms of similar profile. It acts as an initiator of a number of new processes in the investment market, catalyzes the development of reforms in Russia's investment sphere.

Due to the deficit of budget funds to support investments and the retrograde nature of some officials, the Corporation has not yet become the main state center for investment assistance, as was intended at its founding, nevertheless it has traveled a significant stretch of the road in this direction together with its partners and clients. If at the beginning of its activities in 1993 there was an "adventurous" and consumer attitude towards investments in Russia — there was no legal framework and experience of working in new conditions, long-term loans were considered by potential donors in conditions of inflation as a waste of money, and by recipients — as a way to profit at someone else's expense — now, with inflation curbed and ruble exchange rate stabilized, investments are becoming, on the one hand, an attractive way to invest money, on the other — an effective tool for economic development. Not only macroeconomic prerequisites have been created, but also some legislative foundations for investment growth: for example, the Law on Production Sharing has been adopted. There has been a change in the psychology of enterprise directors — they realized that investments must be worked off, that using them for "patching holes" is at least irrational, since this money is given for a certain time and on agreed conditions, violation of which can have a negative effect. Thus, RFC has made its contribution to forming the investment climate in the country.

The Corporation is convinced that state support for investments should be activated both at the level of creating general economic conditions and in relation to specific priority areas. State funds for specific projects should be allocated on a competitive, returnable and paid basis. It is most effective to do this through specialized investment and financial institutions under state control, such as RFC. Taking into account five years of experience in the Russian investment market, the Corporation is ready to fulfill this role, which, incidentally, was assigned to it at its creation.

Main types of activities and services provided by RFC: 1. Financing of investment projects. The Corporation develops project financing schemes, attracts funds for their financing, and itself participates in financing pilot projects. 2. Expertise and development of business plans and investment projects. Work in this area is carried out in accordance with international requirements and using modern foreign and domestic software developments for assessing the financial condition of enterprises and the degree of investment risk, adapted to the conditions of Russian statistics, accounting and business practice. RFC prepares privatization plans and investment programs for privatized enterprises. 3. Services to Russian and foreign companies in finding partners and objects for cooperation and investment. 4. Effective placement of client funds in the financial market. The Corporation invests client funds in quick-payback, highly profitable projects, in government and corporate securities, in other high-yield financial operations. 5. Securities operations. RFC has licenses as an investment company, financial broker and investment consultant with the right to work with citizens. Being a dealer of the Central Bank of Russia, the Corporation conducts operations with internal foreign currency government loan bonds of the Russian Ministry of Finance, government short-term bonds (GKO), federal loan bonds (OFZ) and federal savings loan bonds. The Corporation actively works with shares of privatized enterprises, promissory notes of the Russian Ministry of Finance, banks and enterprises, municipal loans, implements schemes for repaying mutual debts of enterprises, assists in issuing securities and acquiring share packages of the most promising Russian enterprises. A specialized promissory note center has been created in the Corporation for working with securities. To attract free funds, RFC issues its own promissory notes and bonds. 6. Banking services. The Corporation has a license from the Central Bank of Russia to attract funds and issue loans in rubles and foreign currency. Independently and through subsidiary banks, RFC provides clients with a modern set of banking services, including lending, accepting deposits, financial management (effective placement of client funds), trust services, depository services, maintaining client accounts and settlement and cash services, as well as assisting clients in conducting foreign economic operations, carrying out forward and futures transactions with foreign currency and GKO. Through a network of partner banks, RFC ensures quick payments to all regions of Russia. 7. Information and methodological activities. The Corporation has a database of investment projects, publishes methodological and information materials, publishes thematic magazines and monographs dedicated to the investment process and stock market. 8. Conducting conferences, exhibitions and training specialists. RFC conducts active work on finding investors, presenting and advertising investment projects of Russian regions and opportunities of the domestic financial market in our country and abroad. RFC attracts Western specialists and organizes personnel training on working with investment projects, activities in the financial market, and providing banking services.

As for international cooperation, the Corporation carries it out with a number of well-known banks, investment and consulting firms in Austria, Great Britain, Germany, Greece, Netherlands, Italy, USA, Czech Republic, Switzerland. RFC actively interacts with well-known international and national institutions for promoting private investment, including the American Overseas Private Investment Corporation (OPIC), the Italian Investment Promotion Organization (SIMEST), Kreditanstalt fuer Wiederaufbau bank and the Eastern Committee of the German Economy, the European Bank for Reconstruction and Development, the International Finance Corporation, UNIDO and others, as well as with intergovernmental and non-governmental bilateral commissions and associations for international cooperation with major industrially developed countries.

RFC has created a number of specialized companies with state and private capital participation, providing services for various aspects of the investment process in Russia and offering a wide range of banking, insurance, consulting, trading, advertising, security and other types of services.

These include: Interbank Investment Association — Regional Development Bank "Investkredit"; Commercial Bank "Kreditsoyuzkombank"; United National Insurance Company and National Insurance Brokerage Group; RFC Trading House; Rofico company (working with budget arrears); Valdai Venture Fund; International business magazine "Investments" (published in Russian and English), magazine "Opinions"; Security agency "Investment Security".

With the support of local authorities and business structures, the Corporation has created regional branches and representative offices in the main industrially developed regions of Russia: St. Petersburg, Perm, Kaliningrad, Rostov-on-Don, Barnaul, Kaluga, Nakhodka. In Dagestan, by decision of the Government of the Republic of Dagestan with RFC's participation, the Dagestan Financial Corporation was created.

RFC also has agency agreements and cooperation agreements with a number of related structures in many regions of Russia.

The company plays an active role in social life, including carrying out extensive charitable activities. Under RFC's special care is the spiritual sphere of society's life, cultural figures who today experience an acute need for support. In 1996-1997 alone, RFC's assistance was provided to the Moscow Charitable Actors' Fund named after I. Smoktunovsky, Moscow Theater of Facial Expression and Gesture, Modern Theater, Foundation for Publishing Literature for Blind Children, public organization "Order of Constantine the Great", International Publishing Center of Orthodox Literature, Optina Pustyn Monastery, students of the V.I. Surikov Moscow Art Institute, war veterans of Moscow State University and others. RFC sponsored the organization of the international Moscow Theater Festival "Young Talents — to the City and the World".

RUSSIAN FINANCIAL CORPORATION