Rock bottom interest rates for Ukrainian SMEs, thanks to EU4Business

Interest Rate Compensation Programme for SMEs

Small and medium-sized enterprises (SMEs) in the Ukrainian capital Kyiv now have the opportunity to access investment loans at just 7.5% – half of the nominal rate of 15% – thanks to the Interest Rate Compensation Programme for SMEs, an EU4Business initiative implemented by the German-Ukrainian Fund (GUF), with funding from the EU and Germany through the German Development Bank KfW. In the nearest future, the same opportunity will also apply to the regions of Kharkiv and Ternopil, which have signed Cooperation Memorandums with the GUF.

Under the programme, 50% of the nominal interest rate set by the loan agreement is compensated for SMEs in Kyiv city, providing for the lowest interest rate available anywhere in Ukraine. Similar agreements in other regions are expected to follow, with the regions of Kharkiv, Ternopil, Mykolaiv, Dnipropetrovsk, and Kirovgrad having expressed interest in taking up the scheme.

The initiative is part of the second phase of the EU4Business SME Finance Facility in Ukraine. It is implemented thanks to the joint efforts of the German government, which has provided the GUF with a loan of €10 million through the German KfW Development Bank, and the European Union, which is providing €5 million in financial assistance to compensate for currency losses under the loan. The funds for the subsidy of interest rates for SME loans are being provided from local authority budgets.

The initiative is open to small enterprises (fewer than 50 employees and annual income below €10 million), and medium enterprises (50-250 employees, annual income €10-50 million), for local currency loans of up to the equivalent of €250,000. The term of interest rate compensation is two 2 years.

The criteria for loan applications are:

  • Registration and placement of production facilities in Kyiv city, or Kharkiv or Ternopil regions.
  • Type of activity: industry, educational institutions, development of housing and utility services.
  • Purpose of loans: purchase, modernization of equipment, reconstruction of premises.
  • Own contribution of the borrower: not less than 20% of the investment project.

The director of the KfW office in Ukraine, Lutz Horn-Haacke, has described the programme as “a good example how efforts of international and local financial support programs can be combined”.

Signing the Cooperation Memorandum for further development and implementation of an interest rate compensation programme with the GUF earlier this month, the Chairman of the Ternopil Regional State Administration Stepan Barna said it would be a powerful incentive for the development of entrepreneurship, and would increase the investment attractiveness of the region.

"We understand how important the authorities’ participation is in the implementation of projects like these. That is why it is important for us to join this programme and develop in this direction. For Ternopil region, this will be a big step forward, to a developed ‘living’ economy, to new jobs," Barna stated.

Since 1996, the GUF has been directly and indirectly supporting SMEs in Ukraine. Over this period, more than 162,000 loans were provided to SMEs for a total amount of about €750 million.

Within a year, the GUF plans to sign a number of similar agreements with other regions of Ukraine in the framework of its strategy.

The initiative is part of second phase of the EU4Business SME Finance Facility, implemented by the German-Ukrainian Fund, with funding from the EU and Germany through the German Development Bank KfW. The emphasis in Phase II of the SME Finance Facility is to stimulate local currency lending, especially for micro, small and medium-sized enterprises (MSMEs) in Ukraine that are not earning foreign currency and cannot afford the high costs of borrowing.