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Local currency and capital market development

EBRD SME Local Currency Programme

The EBRD’s US$ 500 million SME Local Currency Programme aims to develop capital markets and encourage local currency lending in the countries it invests in.

The Programme combines EBRD capital, donor resources, and policy dialogue to provide eligible companies with access to affordable funding and acceleration in reforms to develop local currency intermediation and local capital markets.

The Programme is the result of an expansion of the EBRD’s Early Transition Countries’ (“ETC”) Local Currency Programme, launched in 2011.It assists 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 the experience with the ETC Local Currency Programme, which funded 130 facilities worth US$ 357.6 million across six ETC countries (Armenia, Georgia, Kyrgyz Republic, Moldova, Mongolia and Tajikistan) and benefitted over 320,000 borrowers.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 the countries it works in.

The development of local currency finance remains a challenge in most of the EBRD’s countries, some of which 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.

To increase local currency intermediation and to support the development of local capital markets in the countries the EBRD invests in, it provides local currency loans by procuring local currency funding or hedging, by entering into currency swaps with third party providers, such as the Currency Exchange Fund, called TCX.

However, the differential between funding/hedging in foreign currency and local currencies in emerging markets is very high. As a result interest rates do not appear viable for small and medium-sized enterprises.

To reduce interest rates on local currency loans, the EBRD and donors have entered into a risk-sharing arrangement, which allows for affordable interest rates. The donors to the ETC Multi-Donor Fund, the US Treasury, Switzerland SECO, Japan, and the EBRD Shareholder Special Fund have supported the Programme by allocating US$ 48.7 million of risk-sharing funds to the Programme.

Local currency loans under the Programme are channeled to small and medium clients only in those EBRD countries  that have explicitly committed to improving their policy and regulatory framework to support local currency intermediation and further develop domestic money and capital markets.

As of February 2017, governments of nine countries (Armenia, Georgia, the Kyrgyz Republic, Moldova, Mongolia, Serbia, Tajikistan, Tunisia and Ukraine) had made such a commitment by entering into a Memorandum of Understanding with the EBRD.

Donor funding has also supported an extensive technical assistance to the participating countries, organized and led by the EBRD’s Local Currency and Local Capital Markets development team. Projects supported include capacity building at central banks to develop the monetary policy frameworks necessary to deepen local currency markets, assessment and development roadmaps for local currency money markets, and development of the legal and regulatory framework to support capital market and risk management instruments.

The Programme is co-led by EBRD’s SME Finance and Development Group and the Local Currency and Capital Markets Team.

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 small enterprises in the countries the EBRD works in. Among others, one of the key SBI objectives is to augment the impact on SMEs through local currency lending.


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Contact the LC2 Team
Alex Pivovarsky, Director
Tel: +44 20 7338 7830
Tricia Park, Principal
Tel: +44 20 7338 8124