6. Short, long and other forms of credit

Short-term credit:The majority of firms and businesses in the USSR could not use their full allocation of funds to meet the requirements of their liquid assets, therefore they heavily relied on short-term credit financing and the demand for this credit was rising. In reality, short-term credit was very important for three main reasons. First, it worked to help to reallocate funds of the Soviet community. Second, it was a tool for financial intermediaries (or financial agencies, because actually during the Soviet Union times the term of financial intermediary cannot be applied to the banking system, since everything was controlled by the Central Bank and all monetary transactions took place at its offices. However, the Gosbank’s offices had a diversity of agencies in regions and districts all across the country and these agencies indeed worked as financial intermediaries to establish and implement the circulation of money and goods). Third, short-term credit could diminish the issuing costs (the costs which were much higher when issuing cash).The specifics of short-term credit implied that it was a direct form of credit, directed at a single individual (or business entity) and was a subject for repayment (obligation to provide money back). This credit had to be always backed by a specific type of asset, otherwise it could not be issued. As it has been said before, the short- term credit was in a great request among different industries and commercial organizations. An interesting feature of this credit is that Kosygin’s reform allowed the issuance of a supplementary credit – a type of the credit given for financial organizations that had a main focus on their quality enhancement of already available goods provided that the sum will be repaid out of the revenues generated by the sale of new improved goods within an annum. The issuance of the short-term credit had been made with a help of two accounts: the normal account and a special account. The normal account implied that every single loan is booked independently on the balance sheet. The amount of credit must be secured with a non - physical asset (which must be 100% provable) in order to be issued with a help of a normal account. A special account was an account for credits on physical assets, like raw materials, finished goods and sometimes credits on wages. It was also often called as a “payment” credit.

Long-term credit:

The long –term credit also had to be secured with an underlying asset, it was characterized as a direct form of issuance and it was tied to a single plan that had to be paid back by an obligation. In the opposite to the short-term credit, the long-term credit was created for the long-term investments and helped to develop new industries. Because it was connected to a single and specific type of the project (plan), it was therefore divided into the following subgroups: “centralized” projects, “non-centralized” projects, agricultural credit, credit granted for consumer co-operatives and a housing credit. To illustrate, in order to finance the reconstruction of existant factories or enterprises, a government provided a centralized type of the long-term credit. Sometimes, the government gave a centralized type of credit, which required a fulfilment of a “must-have” list (including all steps of the execution plan). In the opposite, as the name implies by itself, the non-centralized type of credit was financed by other credit funds, other than State’s. For example, if a technical enhancement was needed for already running businesses, the non-centralized credit was granted. The agricultural credit was mainly directed at collective farms. The credit could mature in 3 or even 20 years, meaning that it was provided for the long-term investment and covered all kinds of improvements in that sector. The forms of credit like “consumer cooperatives” had an original purpose for production improvements and service provision. For instance, the building of a central warehousing or the enlargement of food stores. The credit for housing could be either provided by the Gosbank or the Strojbank. The difference was that the Gosbank issued credit for the rural population and the Strojbank made it for urban citizens. In general, the USSR government tried to elaborate a system of compound long-term credit. Eventually this type of credit received an uprising trend (Kushpeta O., 1978).