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EBRD-backed credit, guarantees smooth cross-border trade

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Erkin Jumabaev has increased staff and their salaries at his window and door factory

Oleg Sibirtsev and his roofing sheets

Mustafa Sertel's factory manufactures large plastic bottles

Credit and guarantees smooth cross-border transactions

When a country is not fully integrated into the international financial system, how do local businesses finance the purchase from abroad of expensive equipment and material on which their growth depends? Enter the EBRD’s donor-backed Trade Facilitation Programme. It provides guarantees for cross-border trade finance transactions and helps small and medium sized businesses in the region to grow through trade.

Erkin Jumabaev, a window and door manufacturer in Bishkek, Kyrgyz Republic, credits the EBRD’s Trade Finance Programme (TFP) with helping him to buy machinery and material from Germany and Turkey. Without it, he could not have expanded his production, sales, staff and his employees’ salaries.

“Before, I didn’t have enough money to grow,” says Mr Jumabaev whose company is called Windoors. “All our foreign suppliers wanted us to pre-pay our equipment orders 100 per cent – I couldn’t do that! This import guarantee facility has been very useful to us.”

The transaction was conducted through Mr Jumabaev’s local lender, Ineximbank. It’s one of the many ‘partner’ banks in the region using the TFP to establish links with international banks. Through the programme the EBRD provides guarantees to international ‘confirming’ banks, covering the political and commercial payment risk of international trade finance guarantees issued by ‘issuing’ banks in the EBRD’s countries of operation.

Doubling production

Thanks in part to trade finance, Mr Jumabaev said Windoors’ production has grown from 2000 square meters of windows and doors four years ago to 3700 square meters today. The staff has increased in that time by 25 per cent to 30 people in total. “I could have increased my staff more. But I decided instead to increase the pay of my existing staff and they have rewarded me with a big increase in productivity,” said Mr. Jumabaev.

He’s been a repeat customer of credits backed by the TFP, accessing $42,000 in April “which I’ve already repaid” on top of $300,000 he had previously borrowed to buy the Turkish material. “I am expecting to take another $50,000 soon for equipment that will allow me to install locks on the windows and doors we manufacture.”

Donor support vital

The governments of Germany, Ireland and Switzerland support the TFP in the Kyrgyz Republic by financing training and consultancy services for local banks and through risk sharing funds. The €8.6 million Central Asia Risk Sharing Special Fund (CARSSF) shares EBRD’s TFP risk in the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan. These efforts help banks to access international finance, strengthen their trade finance experience, introduce transparent banking practices and enable staff to gain experience working with Western confirming banks.

Foreigners want Kyrgyz trade finance

“Trade credit wasn’t available in this country until the EBRD started offering it,” says Ruslan Boronbaev, Ineximbank’s deputy chairman. “Now we’re getting clients from other banks, they need this service. In fact we have Chinese, German and Russian business people operating in Kyrgyz Republic who need these letters of credit.

“However, Ineximbank’s trade credit business is decreasing, for a very positive reason,” Mr Boronbaev continues. “Some of our clients have become so big and have established such good track records that their foreign suppliers no longer demand pre-payment.”

A different kind of gold

Oleg Sibirtsev, director of a corrugated roofing manufacturing company called Komet, is one of those Bishkek firms experiencing phenomenal growth but he still depends on trade finance. Having exhausted his own capital on equipment, he needed credit to import from Finland the metal sheets his workers transform into roofing. “The biggest loan was €210,000, always for the metal sheets which are zinc covered in a polymer.”

Thanks to new equipment and demand for the superior sheeting, “in just two years we’ve increased our production by six times. Our staff has grown from 16 to 40 in that time. I used to be a geologist – now I have found my gold here!” says Mr Sibirtsev who plans to start exporting to neighbouring Kazakhstan.

Bottling growth

Across town, turnover at the Turkish-owned plastic bottle manufacturer Plasform has nearly doubled in one year from $8 million to $15 million, according to general director Mustafa Sertel. He also uses TFP-backed achieve the quality demanded by top clients such as Coca-Cola and Pepsi-Cola.

"We’re now at full capacity and need to import new machines from Canada,” says Mr Sertel. “There is considerable demand for our product – even our competitors can’t meet all the demand – so we need to grow further. We will request more credit so we will lease two more machines.” Most of Plaskap’s production is exported from the Kyrgyz Republic to Kazakhstan.

The trade facilitation programme is an important tool in the EBRD’s new initiative for Early Transition Countries – its poorest countries of operation, including Kyrgyz Republic. Under this initiative the TFP will expand to include more banks, larger loans and more products, such as for the agribusiness sector.

Between 1999-2003 the TFP guaranteed letters of credit from four Kyrgyz banks, confirmed by 13 foreign banks in nine countries. More than half the transactions covered were below €100,000, meaning the programme is reaching small enterprises that are the engines of economic development.

Contact: Trade Faciltation Programme

29 October 2004