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Substitutes and Complements
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| Characteristics | Current situation | Future trend |
| Availability of close substitutes | The main substitutes for POS in Russia are pawnshops, microfinance institutions and personal loans from banks. Also, borrowing money from friends without interest can be a substitute. Up to 5000 lombards are operating on the Russian market and about 0.8 million people used it a year ago. The microfinance market is quite new to our country: Russia has enacted a law on microfinance and microfinance institutions just recently - in January 2011. It is fairly similar to personal loans issued by banks in monetary form, and should be under 1 mil rub[9]. Banks offer a variety of personal loans, but it is quite hard to borrow from bank due to required procedures. It is often an opportunity to borrow money from friends without interest payment, but if a large sum of money is needed such borrowing is rarely available. In general, close substitutes are quite available and wide-spread. | Microfinance market is expected to grow fast and account for up to 300 billion rub. The spread and availability of credit cards are going to increase and they are expected to become more popular because transportation and time costs are significantly lower for obtaining loan via credit card. |
| Price-value characteristics of substitutes | In microfinance market the mean interest rate is 20%, but these organizations usually are not reliable and there is a big probability of getting involved in fraud[10]. In average banks’ interest rates for loans are 15-18% per year. Such borrowings are reliable, but it is quite hard to obtain a loan. Moreover, time and transportation costs are significant[11]. Not so many people have friends who are able to lend money, so this substitute is quite good in terms of price (no interest on loan), but is not reliable in terms of availability of this money to borrow. | Probably interest rates in microfinance market will decrease in response to increased availability of bank loans. |
| Availability of close complements | Pawnshops (lombards) are not only close substitutes to POS, but also their complements since many people borrow money at lombards to pay interest on bank loans. Close complements are not highly available. | The financial crisis affected pawnshops positively unlike banks: the demand for short-time and “without references” credits increased, as well as the interest rates. At the moment, lombards have to cut down the rates, while economy is recovering from the crisis and customers become more capable of meeting banks’ requirements. It is expected that trend on borrowing from lombards will decrease somewhat until new crisis comes. |
| Price-value characteristics of close complements | Mean interest on borrowing from lombards is 14-16% per month or approximately 150% per year[12]. Taking into account very high interest rates in lombards and the fact that they need to secure the loan by borrower’s assets, it can be concluded that borrowing from lombard is not the best alternative. But the demand is not elastic and people neglect overpaying in order to receive “fast” money. | Economy is stabilizing now, so lombards have to cut their rates to compete with banks, which lend money to more customers than they did during crisis. So, the relationship between price and value is going to improve. |
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