A boost for municipal infrastructure in the Western Balkans

By Axel  Reiserer

The EBRD and Kreditanstalt für Wiederaufbau (KfW) are spearheading efforts to improve the municipal infrastructure in the Western Balkans with the launch of a new fund, the Municipal Infrastructure Development Facility (MIDF). The target size of the Fund – established with contributions from the governments of Germany (7KB - SHTML) and Switzerland (8KB - SHTML) – is €100 million, of which €40 million would be provided by the EBRD.

MIDF’s main objectives are to stimulate the growth of the municipal lending market and to achieve long term sustainability in municipal services in the Western Balkans. The Fund will introduce a new and much-needed element to infrastructure financing, in that it is focused on lending to small and medium-sized municipalities which traditionally have limited capacity to prepare sustainable infrastructure projects and are facing difficulties accessing commercial bank funding.

MIDF will cooperate with local commercial banks in the region and will provide credit enhancement, additional liquidity and technical assistance support to encourage banks to take and manage municipal credit risk. The Fund will therefore aim to build the capacity of commercial banks and municipal borrowers with a view to establishing a sustainable lending market for municipalities.

To achieve its mission, MIDF has established a technical assistance facility, with initial contributions of €7 million from the governments of Austria and Switzerland to support project preparation and capacity building of the partner banks and the municipal borrowers.

MIDF has been designed for the Western Balkans, and within this group the Fund’s strategy will be to focus on Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro and Serbia in accordance with local needs. Eligible projects to be financed by the Fund are expected to have a minimum loan size of €100,000, and a maximum of €5 million.

EBRD President, Sir Suma Chakrabarti, said: “We are very proud to establish this new Fund and are confident that it will make a substantial contribution to overcoming the persisting under-investment in infrastructure in large parts of the Western Balkans. In addition to finance, MIDF will also provide expertise and skills transfer for the implementation of best practice and capacity building. Commercially structured infrastructure financing is a precondition to attracting investors and the Fund will play an important role in making this possible.”

The Western Balkans are a focus area for the EBRD, where the Bank – with the support of the donor community – has invested in a number of facilities in addition to its traditional investments. These tailor-made facilities address specific needs, and range from support for small and medium-sized enterprises to energy efficiency credit lines.