The EBRD is to help the plethora of small and medium sized enterprises (SMEs) across the region whose finances were seriously undermined by the global financial crisis secure much needed commercial funding.
Its newly launched Small Business Initiative (SBI) will help small but underfunded businesses, notably those in fragile or frontier states looking to compete on level terms with peers across the world.
“We are trying to get SME finance back to where it used to be,” said Charlotte Ruhe, director, small business support team, at the EBRD. “A lot of things are blocking SME financing in the countries where we are working.
“Smaller firms need to get better at putting their case for needing finance. We are trying to improve their accounting and operations. The EBRD is also looking to help client banks that lend directly to SMEs, to use a broader range of lending services. We want to help them provide covered bonds to clients, and to engage in portfolio risk sharing.”
The multilateral is focusing notably on countries where it can take an age for small enterprises to wade through piles of paperwork to access credit lines. “In frontier countries, companies run into credit limits at banks all the time. That’s where we come in. We are looking to help get banks lending to small enterprises quicker and more effectively.”
Key target markets for the SBI are Russia and Kazakhstan, the Balkans, and the southern Mediterranean and North Africa, where, Ruhe said: “Banks tend to be very risk-averse, and where the funding needs are greater than in more advanced markets.”
Local currency lending is also being tacitly encouraged. “Before the crisis, some of the lending [by lenders around the region] was unsustainable, often because small companies often borrowed in major foreign currencies, which created lending risks,” said Ruhe.
“We are looking for SMEs to borrow in, and banks to lend in, local currency, wherever possible. We are working with policymakers to speed up lending by banks, by helping them crack down on corruption, and tighten up lending rules.”
The plan was hatched in the first quarter of 2014, following a eureka moment for EBRD president Sir Suma Chakrabarti. “It arose from the realisation that money was taking longer than it should to get to companies that needed it most, and from the realisation that the EBRD had a lot of useful instruments that weren’t always being co-ordinated,” Ruhe said.
The multilateral refused to put a figure on the total potential capital commitment, but Ruhe insisted that the SBI was a five year programme that would run until 2019.
Another funding avenue being more aggressively explored is private equity. In Romania, the EBRD is seeking to invest up to €50m ($69m) in smaller firms, a process the multilateral is keen to explore across the region.