In 2003, small and medium enterprises (SMEs) in Russia accounted for 94 percent of the total number of businesses in the country. However, despite their numbers, SMEs produced only 13 percent of gross domestic product (GDP) in 2004 and commercial credit available to help SMEs grow met only 1 percent of demand. High transaction costs, perceived riskiness of commercial lending to SMEs, lack of sound risk assessment methodology, and unfavorable regulations governing collateral possession in case of default discouraged banks from lending to this important sector.