EBRD launches SME Local Currency Programme in Armenia

By Axel  Reiserer

EBRD launches SME Local Currency Programme

Armenia has renewed a Memorandum of Understanding with the European Bank for Reconstruction and Development (EBRD) to become eligible for lending to local small and medium-sized enterprises (SMEs) in local currency under a new EBRD facility.

In parallel with access to affordable local currency funds, the country continues to commit itself to a reform programme which will improve, broaden and deepen local currency and capital markets in Armenia. To achieve this goal the authorities will promote a macroeconomic, regulatory and market environment that supports local currency borrowing and lending with a detailed reform package.

The Memorandum was signed in Yerevan on Tuesday by Armenia’s Minister of Finance, Gagik Khachatryan, Central Bank Governor Arthur Javadyan and André Küüsvek, EBRD Director, Local Currency and Capital Markets.

The signing follows the approval of the EBRD’s Local Currency Programme for SMEs in its countries of operations to mitigate their exposure to exchange rate movements. It includes a new €500 million SME Local Currency Lending Facility that will combine EBRD capital and donor resources to provide eligible companies with access to affordable funding.

The programme – an expansion of the EBRD’s Early Transition Country (“ETC”) Local Currency Programme, launched in 2011 – will assist participating countries to implement reforms and develop local capital markets, enhance access to affordable local currency funding for SMEs and increase the availability of local currency funding sources. Based on previous experiences with the ETC Local Currency Programme, the EBRD has now designed a wider framework to accelerate the development of local money and capital markets and increase availability of local currency financing for SMEs across the majority of its countries of operation.

The development of local currency finance remains a challenge in most of the Bank’s countries of operations,   some of which are among the countries that have the highest exposures to exchange rate movements anywhere in the world. SMEs that sell their goods and services domestically in local currency, but borrow in foreign currency, are highly exposed to this currency risk.

André Küüsvek, EBRD Director, Local Currency and Capital Market Development, said: “This new framework combines investment, policy dialogue and donor support and builds on the successful local currency programmes we have developed over the years. Expanding the availability of local currency financing is crucial for the growth of local businesses by providing them with fund at affordable rates and manageable risk.”

The EBRD’s Local Currency and Local Capital Markets Initiative, launched in May 2010, aims to enhance the macroeconomic, regulatory and market framework to ensure long-term sustainable and liquid local currency markets. The initiative’s goal is to strengthen local capital markets and encourage the use of local currencies in the Bank’s countries of operations. Technical cooperation and donor support provide vital backups for the programme.

The SME Finance and Development Group was created in 2013 under the Small Business Initiative (SBI) – the EBRD’s strategic initiative dedicated to supporting and developing the Bank’s SME business. Among others, one of the key SBI objectives is to augment the impact on SMEs through local currency lending.

Claudio Viezzoli, EBRD Managing Director, SME Finance and Development Group, said: “Recently and once again we have witnessed significant currency devaluations in our countries of operations. Such events hit small businesses the most, leaving them at mercy of FX movements. This is why EBRD and donor support to SMEs with local currency financing is vital. The EBRD has been a pioneer among international financial institutions and already provided access to local currency to some 300,000 SMEs. This number is expected to at least double in the next two years under the SME Local Currency Programme.”