Boosting the supply of credit to small and medium-sized enterprises is vital for jobs and growth, especially in Ukraine where SMEs account for over 90 per cent of businesses and employ two-thirds of the active working population.
Thanks to EU support under the EU4Business initiative, in 2017 the European Investment Bank Group started a programme, which provides loan guarantees to local banks in the country.
Ruslan Spivak is the Corporate Business Director of Raiffeisen Bank Aval, one of the Ukrainian banks taking part in the EU initiative, along with Oschadbank, Ukrgasbank and ProCredit bank. He says the programme significantly improves Ukrainian SMEs access to finance.
"Today only 6 per cent of Ukrainian SME's have access to finance, which is extremely low. Due to the European Investment Bank programme, we can triple this figure. This is really vital for the Ukrainian economy."
Polissia-2002 is one Ukrainian company that has benefited from the new financial initiative.
Founded in 2014, it is a rapidly growing SME specialised in the export of pine timber. The company's average output is around 2000 cubic square metres of pine board per month. Recently, Polissia-2002 was able to obtain two loans totalling one million euros from Raiffeisen Bank Aval, through the credit guarantee provided by the EIB.
Co-owner Yaroslav Bayev says the money was vital in terms of buying new equipment, such as wood drying kilns manufactured in Italy.
"With these loans, our company had the opportunity to reach a completely new level, so we built the new warehouse where we are standing right now; we built up and set up additional kiln dryers and we set up a new cutting line.”
The new kilns have enabled Polissia to dry around 1500 cubic square metres of pine board per month. That means, today, 90 per cent of the firm's production is exported, most of which is sent to the EU, Asia and the Middle East.
“Nowadays, competition worldwide is very high. In this case, the company had to develop very rapidly. With this (financial) help, we’ve been able to reach a new level,’’ Bayev says.
The guarantee, which covers up to 70 per cent losses on individual SME loans, enables the EIB to significantly improve access to finance for small and medium-sized enterprises in Ukraine.
The programme also allows the Ukrainian lenders taking part in the programme to offer improved loan terms to SMEs, particularly in the form of reduced collateral requirements.
"In terms of the programme we finance SMEs with a transparent and healthy business model, which may lack the collateral. We are aiming to support local producers with an innovative and export-related strategy," Spivak says.
In addition to Raiffeisen Bank Aval, three other banks in Ukraine are involved in the EIB initiative providing loans to SMEs in local currency.
The loan guarantee programme is the centrepiece of the Deep and Comprehensive Free Trade Area (DCFTA) Initiative East– funded by the EU under the EU4Business initiative – which aims to strengthen economic development in the countries which have signed an association agreement with the EU (Georgia, Moldova and Ukraine) by providing targeted financial and technical support to small and medium-sized enterprises (SMEs) in these three countries.
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