Financing through financial institutions
The EBRD provides financing to almost 200 local banks and microfinance lenders across the region, so that they can offer more loans and new financial products for small businesses in their own markets. Our credit lines might allow banks to start reaching small enterprises for the first time or to target women entrepreneurs, local businesses adopting energy-efficient practices, or innovation driven companies.
In the long term, we want financial institutions to continue offering these products independently. Therefore we not only provide them with credit for on-lending to SMEs, but we also offer technical assistance and expertise to help them better serve their SME clients in a sustainable way.
More than €1 billion is provided to micro, small and medium-sized businesses this way each year – crucial ‘behind-the-scenes’ work that provides a model for durable change.
Finance and advice for women in business
In 2014, an ambitious plan to support women entrepreneurs came to life. Combining €460 million in dedicated finance with advisory services for over 10,000 women-led SMEs, the Women in Business programmes offer a comprehensive package of support that promotes women’s entrepreneurship and economic growth.
Credit lines provided to local financial institutions are supplemented by technical assistance for partner banks, helping them make the adjustments necessary to better serve the women’s banking market. On the advisory side, consultancy projects for women-led firms are combined with networking opportunities, training in key skills and mentoring from entrepreneurs around the world.
Co-financing with financial institutions
We work in tandem with local financial institutions and private equity funds, sharing the risk of financing small businesses. By engaging with financing partners, we expand access to long-term financing for medium-sized enterprises and encourage more investment in challenging markets. This enables our financing partners to keep pace with the growth of their clients. And as other opportunities arise, we hope investors and financiers will follow our lead.
Scaling up ice-cream production in Tajikistan
The Yakhmos Group, a family-owned samosa and ice-cream producer in Khujand, northern Tajikistan, needed funding to expand their production. In the EBRD’s first ever co-financing deal with a local bank in the country, the EBRD and Bank Eskhata extended a joint long-term loan to the company to finance equipment upgrades – a loan with a longer tenor than they could have found in the market. At the same time, Yakhmos worked with a Japanese adviser on implementing best practice food safety procedures, marketing and business strategy, to ensure they were ready to grow. Within a year, turnover had increased by almost 25 per cent.
Direct financing for small businesses
Where financing opportunities for small businesses are limited and we see potential, the EBRD finances companies directly. We work closely with our clients to understand their needs and help them structure the financing in a way that makes sense for their development. We use these deals to create a demonstration effect. By developing financing products that are innovative or less well-known in these markets, we create a model for others to follow.
We often combine direct financing with business advice to the client company. This approach helps firms improve their management practices so that they can achieve international standards of corporate governance and financial transparency, improving their performance and creditworthiness.
Taking a pharmaceutical producer from local business to regional leader
Owned by two scientists-turned-entrepreneurs, Liqvor is a pharmaceutical producer from Armenia that we have helped to grow from a garage-based startup to a regional exporter. Building on an EBRD equity investment of $500,000 in 2004 for new production lines and a $1.5 million loan from the EBRD in 2010, Liqvor was able to raise a further $2.9 million from local banks to support its growth. This funding success was thanks in part to the improved financial and accounting standards we helped them introduce. We also assisted the company to receive certification in good manufacturing practices – the first company to do so in the South Caucasus.
Finance alone often cannot meet the challenges that small and medium-sized enterprises face. Businesses also need access to know-how, networks and skills to help them innovate and succeed. We provide advice to SMEs in a wide range of areas, from strategy to operations, quality management, financial reporting, energy efficiency and more. Our network of local consultants and international experts introduce the latest best practice, helping small businesses become more competitive and grow. We also work to build strong, competitive markets for business advice that will thrive, long into the future. This means developing competent, qualified consultants and building local institutions.
Rethinking retail in Belarus
We have helped Mark Formelle, a family business in Belarus that manufactures and sells clothing, to build a strong brand strategy and increase sales by 30 per cent. After working with a local consultant on branding, we connected Mark Formelle with an international adviser, who helped the business improve production efficiency and develop a new store concept, raising the market profile of the brand. The EBRD has since provided a $4 million loan to finance expansion.
We recognise that the challenges facing small businesses are complex. For this reason, we go beyond our work with firms and financial institutions to interact with policy-makers, sharing our legal and economic expertise through policy dialogue to help improve the business environment. This country-based engagement complements and strengthens our financing and advisory activities. It might mean undertaking a large-scale business survey, or helping to set up a registry of movable assets, or developing legal standards and principles for issues like collateral, venture capital, corporate governance or business licensing. It might even mean designing specific capital market instruments such as covered bonds to enable SME-oriented financial institutions to obtain financing.
By lowering barriers that small businesses face and building sound institutions that support a vibrant SME sector, we promote systemic change so economies can thrive over the long term.
Making collateral less burdensome in the Slovak Republic
Reforming late can sometimes be an advantage. In 1999, the Slovak Republic was trying to catch up with its neighbours in the EU accession process. A new law on collateral was needed. This kind of reform would open up financing for smaller enterprises, which couldn’t provide the high levels of collateral that local banks were seeking. The Slovak Republic came to the EBRD for support in bringing about the changes they needed.
The EBRD assisted Slovak policy-makers in putting together a new legal regime for taking security, which provided more flexibility, certainty and transparency. This drastically reduced the cost of borrowing, for small businesses in particular. By encouraging banks to ask for less onerous terms or be more flexible in the collateral they required, businesses were able to borrow more and on better terms.