US$ 100 million to support the development of Georgian SMEs
The European Bank for Reconstruction and Development (EBRD) and the European Union (EU) are stepping up their support for businesses in Georgia with a joint programme to help domestic small and medium-sized enterprises (SMEs) converge with EU standards so that they can take full advantage of the opportunities offered by the Deep and Comprehensive Free Trade Area (DCFTA) between Georgia and the EU.
The establishment of a free-trade area is part of the EU’s Association Agreements (AAs) with Georgia signed in 2014. It will offer local firms access to the EU Single Market, the world’s largest free-trade area, and help boost economic development and growth in Georgia.
Under the agreement the EBRD is extending a loan of around 220 million Georgian lari (US$ 100 million equivalent) in a local currency financing package to Bank of Georgia to support the development of local SMEs. The financing facility is denominated in local currency and will be on-lent to the private sector; it includes DCFTA SME finance of up to US$ 50 million equivalent, SME finance of up to US$ 40 million equivalent and Women in Business SME finance of up to US$ 10 million equivalent.
The facility will help local SMEs invest in improvements to product quality and modernise their services to meet EU standards. This in turn will create an environment that is beneficial to cross-border trade and economic growth in Georgia.
The EU will provide interested SMEs with investment incentives of up to 15 per cent as well as technical assistance in the form of advisory services from international consultants and the EBRD’s Advice for Small Businesses.
Furthermore, the financing package will increase access to credit in local currency and specifically support businesses that are managed or owned by female entrepreneurs for better access to finance, know-how and advice.
This is a very attractive financial package for Georgian SMEs and banks for the following reasons.
- Loans to SMEs are in local currency, which is very important for local enterprises.
- The loans have a tenor of up to five years, with a two-year grace period.
- Cash-back investment incentives of up to 15 per cent are available for SMEs.
- First-loss risk cover guarantees up to 10 per cent of the loan portfolio of eligible SMEs.
- Technical advice is available free of charge for these SMEs, from international experts.
- The package includes support for investment in new technologies and equipment.
The signing marks the first phase of the planned EBRD-EU programme under which the EBRD is working with local banks to help businesses further invest in improving product quality and service standards.
Bruno Balvanera, EBRD Director for the Caucasus, Moldova and Belarus, said: “The Deep and Comprehensive Free Trade Area with the EU opens up an important new market to Georgian companies. The EBRD is ready to help local SMEs become more competitive on regional markets with the provision of long-term local currency financing. Our initial instalment of up to 220 million lari will be a big boost to the private sector. We are grateful to the EU, our largest donor, for its continuing support for the implementation of such an important initiative. The EBRD is committed to supporting businesses and companies in Georgia through investment, know-how and policy dialogue with the government to help the economy make the most of new market opportunities.”
Katarina Mathernova, Deputy Director-General of Neighbourhood and Enlargement Negotiations at the European Commission, commented: “Georgia has made a lot of effort in the approximation to EU standards based on the AA and DCFTA commitments. The DCFTA will contribute to further acceleration of economic growth, a key priority for Georgia's modernisation and development. In light of the opportunities offered by the DCFTA, Georgian businesses and SMEs have enormous potential to develop. But it is important to prepare them to comply with higher standards and to compete effectively. I believe that the EU grant together with the EBRD loan and technical assistance will provide added value both to SMEs and consumers, so that they can both benefit from the DCFTA and increased competitiveness in the market.”
“I am very pleased to announce receipt of the largest and the longest-maturity local currency loan granted to a Georgian bank. The loan will enable Bank of Georgia to issue longer-term local currency loans and thus provide vital support for micro, small and medium-sized enterprises in the country. One of the main priorities for Bank of Georgia is the further extension of its financing to SMEs in Georgia, including to women-led enterprises to increase women’s participation in developing the country’s private sector. I would like to thank our longstanding partner the EBRD for this successful cooperation,” said Murtaz Kikoria, CEO, Bank of Georgia.
Since 2011 the EU has also provided funding to the EBRD’s Advice for Small Business to boost the know-how of entrepreneurs seeking to grow their businesses in the European Neighbourhood region. Both programmes are part of the EU4Business initiative, which supports EU projects to back SMEs in Eastern Partnership countries.
With its local presence and 25 years of experience in working to develop the private sector in Georgia, the EBRD is in a strong position to successfully promote this project. The EBRD is the largest institutional investor in Georgia and has invested €2.6 billion in the country.