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ETC Initiative improves lives at grassroots

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Two years ago, the EBRD took stock of the situation in its seven poorest countries of operations: Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan and Uzbekistan.

“The picture was, to put it mildly, grim. They were stagnating amid poor conditions,” remembered EBRD Vice-President Fabrizio Saccomani as he began to outline progress since then under the EBRD programme to support economic development in those seven Early Transition Countries (ETCs).

Speaking to donors and others attending an ETC workshop as part of the EBRD’s Annual Meeting underway in London this weekend, Mr Saccomani and other senior Bank staff itemised gains achieved since the ETC Initiative was launched in 2004.

First, donor funding has more than doubled to reach €18 million in 2005, in particular via the ETC Multidonor Fund which pools grants from Canada, Finland, Ireland, Japan, Luxembourg, Netherlands, Norway, Spain, Sweden, Switzerland, Taiwan and the UK.

That donor funding has acted as a catalyst in boosting EBRD investment which has almost quadrupled from €53 million in 2003 to €250 million in 2005.

Financing entrepreneurs

Chikako Kuno, Director of the EBRD’s Group for Small Business, charted her team’s efforts to fund small entrepreneurs in the ETCs. “Going into former state-led economies, there was a dearth of financing and entrepreneurship,” she commented. “Many people were forced to become entrepreneurs and have been financed through family members, through retained earnings or loan sharks.”

The Group for Small Business provides credit and training to local financial institutions and a growing number of non-traditional, grassroots lenders such as charities/non-governmental organisations. These then ‘on-lend’ the EBRD’s capital and, as they witness the profits to be made from lending to poor entrepreneurs, they start lending their own capital as well. In the ETCs the Group for Small Business has financed 20,000 new businesses via 282,000 loans totalling €744 million, with an average loan size of $2630.

“Our partner banks have lower default rates than other banks, thanks in great part to the training provided by donors,” said Ms Kuno.

She cited the example of Georgia coffee shop owner Nargiza Kurtanidze who initially borrowed $59 from EBRD partner bank ProCredit to buy coffee beans to build her business shortly after Georgia’s ruinous civil war drew to an end.

“ProCredit Bank was the first bank where I stepped in after the civil war,” Ms Kuno quoted Mrs Kurtanidze as saying. “To tell you the truth, I was a bit scared that they would tell me this bank was not suitable for me. But what I found there was a warm atmosphere with young professional staff who helped me make the best coffee shop in my district!”

Quantifying impact

EBRD Chief Economist Erik Berglof said that his department is increasingly looking at ways to quantify the impact the Bank has on people’s lives. “We cannot ignore the broader context. Whose lives are we really affecting? It’s important for our institution to show concrete results.” He said the Bank’s projects should increasingly be designed in ways that will facilitate that analysis. As an example he cited a study of the EBRD’s small business lending programme which turned up evidence that Bank-backed businesses are more profitable and create more jobs than do other firms.

EBRD’s investments in municipal and environmental infrastructure (MEI), from buses to water services to city-wide residential heating systems, have direct impact on quality of life, asserted MEI Deputy Director Henry Russell.

Between projects currently under consideration and those already approved for financing, Mr Rusell said, the MEI portfolio affects a population of about two million people in 17 municipalities across the early transition zone.

Unfortunately, given the poverty both of the utility companies and their clients, many infrastructure projects require large-scale grants or cheap loans from donors. The Bank estimates it needs $35 million to fund its proposed new MEI projects in the ETCs.

Everyday people benefit

Building on Mr Berglof’s comments, Mr Russell pointed out the direct impacts to be achieved through three projects in Georgia.

Investment in the bus system in Tbilisi will yield safer, more reliable service for 378,000 people and a reduction in fuel use and greenhouse gas and other pollutants. The Kutaisi water project will benefit 191,000 by bringing cleaner water, reducing water-borne illness, cutting energy costs by one-third and decreasing pollutants discharged into the Black Sea. The Adjara solid waste project benefits 143,000 by reducing uncontrolled dumping, creating an EU-standard landfill and recycling facility.

Written by EBRD Senior Writer Kate Dunn.

21 May 2006