Tim Gosling in Moscow -

Late afternoon in a downbeat part of central Moscow and a line 10 people deep has formed in the Svyaznoy electronics store. Each clutching a passport, these potential customers are waiting to apply for a consumer loan to buy a new mobile phone or digital camera.

About 12 months ago, the line would have been significantly shorter, while the applicants - despite bringing two or three times as many documents - would have been more nervous about being turned down. But with Russian consumers recovering their confidence and lenders relaxing the requirements they tightened last year, consumer credit levels are heading back towards the rapid growth rates they enjoyed in the boom years before the crisis.

Consumer credit growth froze last year as interest rates on a six-month loan peaked at around 80%. Now stores are seeing new credit schemes add extra impetus to reviving sales. Interest rates still come in north of 50%, but Russian consumers have little choice when making major purchases. Credit cards are a relatively new innovation, but the number of store cards issued by leading white goods chains have been growing exponentially, with as many as one-third of purchases in their stores made on credit.

Michael Tuch, chief operating officer of Svyaznoy, says that the company's credit scheme is now making up ground, with growth of 20-25% so far in 2010. At the same time, just as in 2007, 65% of applications in his stores are now successful, compared with just 35% last year.

That's because the retail banks that stand behind the likes of Svyaznoy are now also turning the corner, and believe that borrowers will be able to pay off loans. Aleksey Levchenko, CEO of Russia's third-largest consumer credit lender Renaissance Credit, froze new loans in September 2008. Now not only is the bank seeing new loan business growing healthily since it restarted lending in July, but it bought 14 outlets from Barclays Bank at the end of May to expand.

As well as worrying about whether borrowers would fail to pay them, retail banks also struggled to find the funds to lend in the first place. Through the boom years they had relied on wholesale funding - borrowing cheaply from abroad by issuing Eurobonds and suchlike, then lending on at much higher rates. The crisis saw this cheap money simply disappear, not to return until the second half of 2009.

Crucial consumers

The revival in consumer lending is not just good news for the banks and the shops, it's crucial to Russia's economic recovery and security. While the government struggles to modernise the country and reduce its reliance on commodity exports, consumers are one of the few buffers against global shocks. "Russia was the only one of the four countries to see its economy contract," says Eric Kraus, an analyst with Otkritie Financial Corporation, referring to Brazil, Russia, India and China. "That was because it's the only one that hasn't got a massive domestic consumer market, and relies too heavily on oil imports to pay the bills."

The irony is that, according to the International Monetary Fund (IMF), Russia is by far the richest of the four countries in terms of purchasing power parity (PPP), as despite its problems it's a relatively mature industrialised economy. It is the very poverty of Russia's peers that allows them to keep up such phenomenal growth rates of both consumer spending and GDP.

The potential for Russia's consumer spending to rise is certainly there, however. In the US, consumer spending makes up two-thirds of the economy, but this is powered by personal debt that is equivalent to a staggering 97% of GDP. In Russia, consumer spending is reaching towards half of GDP, but most of this is paid for in cash, with consumer borrowing accounting for a mere 8% of GDP.

The government, having ploughed billions from its sovereign reserves into raising pensions and salaries during the crisis, is glad to see the tactic starting to work. Consumer spending has begun to see a real recovery since the start of the year: following a drop of 5.5% over 2009, January saw Russians back at the checkouts and by April retail sales were up 4.9% on year.

Renaissance Credit has also seen things pick up. The company lent $3.8bn to consumers in 2008, but that tumbled to $200m last year. With the volume of new loans improving every quarter since November, however, Levchenko expects to lend $1bn overall in 2010 and hopes to regain pre-crisis levels by 2012.

Tuch, meanwhile, says the nature of the game has changed at Svyaznoy as a result of the crisis. Although the volume of credit going through his stores this year is rising, the number of units he's selling has risen 27%. This has seen the average size of loan fall 12%, he says - in other words, the average Russian is buying more mobile phones and cameras, but choosing cheaper models.

This illustrates why Tuch agrees with Levchenko's belief that consumer confidence has some way to go before it fully recovers - a vital ingredient if Russia is to return its rocket-fuelled pre-crisis growth rates. "It's very difficult to calculate fear," suggests Levchenko. "Probably it's getting less and less, but it certainly still exists; the recovery is not driving a Ferrari."