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New boost for micro-finance investments in Romania
EBRD, EU and Romanian government launch €88 million SME facility
Thousands of entrepreneurs in Romania could benefit from a new €88.02 million
facility launched by the EBRD, the European Commission, the Romanian
government and a syndicate of commercial banks.
The Romania Micro Credit Facility will provide loans – in local currency lei
or euro – to local banks and non-bank micro finance institutions to on-lend to
micro and small enterprises (MSEs), including the financing of start-up MSEs.
The facility is being created to address the issue that entrepreneurs in
Romania, especially in remote and rural areas, have little access to finance
other than from sources beyond the financial sector that can charge very high
interest rates.
Chikako Kuno, EBRD Director for Small Business, said there are still many
banks in Romania which are largely unwilling to lend to MSEs due to the
perceived risks associated with the sector, while non-banks are largely
limited by a lack of their own funding. This facility will help overcome these
gaps in the market, and should generate thousands of new micro businesses that
will help create jobs and support economic growth in Romania, said Ms Kuno.
The new facility will be financed with €40 million from the EBRD, €30 million
from the commercial syndication market, €13.6 million from the EU Phare
Programme and €4.42 from the Romanian government. The EU and the Romanian
government will provide €2.5 million of technical assistance funds to develop
new financing products for MSEs, help improve risk management procedures, and
help train staff in providing financing to MSEs. To encourage partner lending
institutions to finance more start-up MSEs (for example, those less than 12
months old) €3 million of the EU finance will also cover up to 50 per cent of
losses incurred by partner lending institutions on loans made to start-up
micro businesses.
“Competitiveness of the economy depends strongly on the capacity of small
businesses”, declared Ambassador Donato Chiarini, Head of Delegation of the
European Commission in Romania. “They are a key source of jobs, ground for new
business ideas and the main driver for entrepreneurship. Therefore,
strengthening small and medium-sized enterprises is vital to ensure increased
competition. But, getting a company off the ground or expanding it requires
money, and finding the right kind of finance is often a major difficulty for
SMEs. Through the Facility, Phare funds are jointly mobilized with resources
from EBRD and from Romanian Government to provide loans to SMEs. The
Commission makes it easier for SMEs to get loans from banks by providing
guarantee funds as well as technical assistance to the partner lending
institutions.”
Romanian Minister of European Integration, Ms Anca Daniela Boagiu, said that
the main objective of the microcredit scheme is to provide development finance
in Romania through the local financial sector, notably focusing on the needs
of start-ups and micro-enterprises. “The Microcredit Scheme aims to provide
financial support to targeted beneficiaries, complementing the resources
provided by the local financial sector and/or by Development Finance
Institutions (DFIs) active in Romania. The project will act as a promoter for
Jeremie – Joint European Resources for Micro to Medium Enterprises – an
initiative by which it is intended to improve the supply of risk capital to
small and medium-sized enterprises in the EU regions and it is expected to
begin in 2007”, Ms Boagiu said.
Opportunity Micro-Credit Romania (OMRO), a dedicated micro-finance institution
based Targu Mures, will be the first to receive funding under the facility.
The RON 9.85 million (€2.8 million) loan will enable OMRO to build on its
existing portfolio of micro-business clients. Typical loan sizes from all
institutions to MSEs will be below €10,000 and will target businesses
employing 9 people or less. Mr. Csaba Kalman, OMRO Chief Executive Officer,
said that OMRO is one of the first micro-finance institutions in Romania, with
assets of RON 32.6 million and a portfolio of 2,048 active loans. The funding
obtained from the EBRD will contribute significantly at expanding our MSE
financing activity and reaching our target of more than 3,000 active loans in
2007.
The EBRD is the largest investor in Romania, having committed over €3.2
billion in around 115 projects.
The European Union supports Romania with expertise and financial resources in
view of accession preparation, through three specific programmes: Phare, Ispa
and Sapard. The beneficiary sectors vary from regional development and SME
support, to investments in transport and environmental infrastructure and
rural development. The total annual amount of funds allocated to Romania
through the three pre-accession programmes has increased from about €660
million in 2003 to well over €1 billion in 2006. The management of these funds
is done by the Romanian authorities, under the coordination of the Ministry
for Public Finance.
Note to editors – background to project
• The microfinance sector in Romania is estimated to be worth over €0.5
billion.
• Micro, small and medium-sized enterprises (MSMEs) comprise over 99.9 per
cent of all enterprises in Romania (over 500,000 in 2005) and 92.2 per cent of
those are micro enterprises (employing 9 staff, or less).
• Romania is estimated to have 23 active MSMEs per 1,000 inhabitants. This is
considerably less than some new EU countries such as the Czech and Slovak
Republics (42.7 MSMEs per 1,000 inhabitants).
• The approach of the Romanian banking sector to MSEs has improved, but
individual entrepreneurs and the smallest of MSEs still have difficulties
accessing finance on acceptable terms. Credit is available on the market but
credit criteria used by the banking sector often works against start-ups which
find it even more difficult to find suitable finance, particularly in rural
areas.
• Due to the absence of conventional credit facilities for MSEs, 87.5 per cent
of small scale enterprise investment must be provided from the promoter’s own
investment and internal cash flow, compared with 66 per cent in Western
economies. This factor alone could account for the lack of growth in the MSE
sub-sectors since company expansion inevitably means increased demand for
working capital.
• The project reflects the EBRD’s strategy to provide more support for
entrepreneurs. To date the Bank has helped finance more than 1.9 million
micro, small and medium-sized enterprises across its countries of operation
through more than €12.4 billion. Repayment rates on loans currently average
around 99.5 per cent.
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