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EBRD and the European Commission launch new financing facility for small and medium-sized enterprises in central and eastern Europe
As part of their joint effort to support the development of small and medium size enterprises (SMEs) and central and eastern Europe, the European Commission and the European Bank for Reconstruction and Development (EBRD) have reached an agreement to establish a EUR 125 million SME Facility for the 10 central and eastern European countries that are candidates for EU accession.
The EBRD has been supporting SMEs since its inception through small business programmes, equity investments in banks, credit lines to banks, trade facilitation mechanisms and a considerable network of private equity funds. EU support to SMEs in Central and Eastern Europe has also been provided under the EU-Phare program since 1990, mainly in the form of technical assistance and joint ventures between the EU and individual countries.
This joint facility will contribute to the economic transition of the Central and Eastern European countries and to the preparation of their accession to the EU. Its principal objective is to promote growth of the local small business sector, by providing access to stable finance-term loans and equity through the strengthening of local financial institutions. The facility will provide incentives for financial intermediaries to embark upon new financing instruments and activities. It will enable local banks to strengthen their loan appraisal and monitoring, supervision and workout skills, while country-based equity funds will provide essential equity capital to SME’s and help to encourage an increase in equity investments.
"Support for small and medium-sized enterprises through a strategic, integrated, country-specific approach is one of the main priorities of the EBRD in its work to foster transition to market economies in Central and East European countries", said Horst Köhler. He continued, "The Bank is placing renewed emphasis on the need to expand finance for SMEs and will increase its efforts to create a culture of SME support. Our efforts complement those of the EU in continuing to support the development of SMEs, which constitute a vital and dynamic element in the economies of the Bank’s countries of operations. The SME Facility is to be followed by other programmes for SME finance in other countries of operations of the EBRD."
Speaking on behalf of the European Commission, Yves-Thibault de Silguy, Commissioner responsible for Economic, Financial and Monetary Affairs, stressed the importance of a strong and vibrant SME sector for economic development, employment and adequate preparation for EU accession. "We are already working with my colleague Hans van den Broek, Commissioner responsible for External Relations with central and eastern Europe, on a second phase of the project and I trust that the EBRD will continue to play a major part in supporting the facility in years to come, " said Mr. De Silguy.
The facility’s funds of EUR 125 million will be managed by the EBRD. The financing consists of EUR 50 million in the form of grants form the European Commission and EUR 50 million in credit lines from the EBRD, which is also providing EUR 25 million in fund investments.
The SME Finance Facility will consist of two "windows", covering both equity and loans. Funds will be provided to financial intermediaries for investing in or on-lending to SMEs. Under the loan window, financing will be granted to local participating banks. The average size of a loan to banks will range between EUR 10-15 million. The maximum sub-project size will be EUR 250,000, but most sub-projects will generally be well below this amount. Loans to banks will be combined with grants made available as incentives by the European Commission. This would include technical cooperation (TC) funding to recruit and train bank staff in small loan appraisal, supervision and loan administration skills. TC funding will also be used to install management information systems geared towards SME portfolios, and to assist in the introduction and implementation of procedures and practices needed for SME lending.
Under the equity window, capital will be allocated to private equity funds. The European Commission and the EBRD will contribute equal amounts and, in addition, private capital will be raised depending upon market conditions. Each fund will be structured individually to take account of local market conditions as well as standard business practice for equity funds. The funds will be managed by independent, professional fund managers selected on the basis of their competence and track record. These fund managers will be allowed to use the full range of equity and quasi-equity instruments, in particular term lending, and they will hold minority positions in their investee companies.
The EBRD and the European Commission expect to initiate the programme during 1999 with at least 10 financial intermediaries. The programme will be expanded considerably in due course.
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