EBRD to inject almost €4bn into ‘struggling’ small firms
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Emerging Markets

EBRD to inject almost €4bn into ‘struggling’ small firms

The EBRD plans to boost lending to regional small and medium sized enterprises (SMEs) in the years ahead, in an attempt to fill the gaps left by banks still deleveraging, years after the financial crisis.

The EBRD plans to boost lending to regional small and medium sized enterprises (SMEs) in the years ahead, in an attempt to fill the gaps left by banks still deleveraging, years after the financial crisis.

Claudio Viezzoli, head of the EBRD’s new SME Finance and Development Group formed last July to bring all small business lending and policy advisory operations together under one roof, said the savings would help it raise SME lending by around 20% a year.

The development bank lent around €1.5bn ($1.69bn) to SMEs in 2014, or just shy of a fifth of its entire capital investment of €8.7bn. That number should rise sharply in the year ahead and to more than €3.7bn by the end of the decade.

The number of smaller firms in which the development bank directly invests is also set to jump, to around a half of all newly invested projects by 2017.

In 2014, the EBRD invested or bought shares in 130 regional SMEs, as well as lending indirectly through third parties to around 200,000 small firms.

“Small companies across the region have been struggling ever since the financial crisis,” Viezzoli said. The sharp recent slowdown in Russia merely exacerbated the process. “We saw the need to deepen our engagement in member countries where smaller corporates were really struggling.”

Woolier markets

Bringing the bank’s entire SME strategy together under one roof means the bank can both save money and search out fast-growing enterprises in wilder and woolier regional markets.

The hardest-hit markets for SME lending were in areas such as the western Balkans, the Caucasus, and the easternmost reaches of emerging Europe. “These were the areas most affected by the financial crisis, and where bank deleveraging was still taking place. This was the area where SME lending was needed most.”

EBRD officials said the next step involved channelling more lending to aspirational, fast-growing corporates in struggling markets. They turned to the European Commission, which has set up Deep and Comprehensive Free Trade Agreements (DCFTA) with three Western-leaning regional states: Moldova and Ukraine, both of which are set to see their economies contract sharply this year, and Georgia. The European Investment Bank (EIB), which recently opened its first Caucasus office in the Georgian capital Tbilisi, was also invited.

Charlotte Ruhe, director of small business support team at the EBRD, said the three institutions hammered out a financial programme to lend more capital to smaller firms, with €150m channeled through the DCFTA by the European Commission, and €300m by the EBRD.

“It’s a massive programme and highly political, and it’s going to be a big challenge for SMEs to meet these requirements,” said Ruhe. “But we want to help vibrant young companies that are committed to reaching new markets and meeting EU quality standards.”

The bank recently committed to boost direct lending to SMEs in Kazakhstan by €41m, Viezzoli said, adding that the EBRD was “keen to deepen our operations and engagement in all member countries, and the best area where we can do that is by lending to SMEs — in local currencies, wherever possible”.

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