SME Finance Facility – Phase I

Amount:

EUR 15.5 million

Investment focus:

SMEs, financial intermediaries

The SME Finance Facility combines loans from the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the KfW (Kreditanstalt für Wiederaufbau, German government’s development bank) with EU grant resources, to support SME lending in the Eastern Partnership region. Financing is channelled through financial intermediaries throughout the region, increasing the availability of long-term funding to the SME sector.

Objectives

The SME Finance Facility aims to:

Rebuild financial intermediaries’ confidence to extend financing to SMEs, including micro-enterprises, following the financial crisis.
Enhance financial intermediaries’ capacity to assess and monitor the related risks and manage their SME financing.
Strengthen and deepen the SME credit markets.
Expand financing options available to the real economy.
Promote continued development of market-based financial institutions, and contribute to institution building.
Support expansion of private and entrepreneurial initiatives, working with local and international financial intermediaries.

Beneficiaries

Financial intermediaries (banks, leasing companies, investment funds).
Small and medium-sized enterprises (SMEs).

Activities

The SME Finance Facility is divided into two parts, one implemented by the EBDR/KfW, and the other by the EIB.

EBRD/KfW (€10.4 million – 2010-2019)

Credit support for SME lending in EaP countries or regions where lending to SMEs has decreased considerably due to heightened risk aversion among Participating Financing Institutions (PFIs), resulting from the crisis. This takes the form of a loss risk-sharing cushion for PFIs, provided for sub-loans funded under EBRD/KfW credit lines.
Technical assistance to PFIs on a case-by-case basis, in order to maximise their ability to service the needs of SMEs as well as to expand SME financing to new areas and to develop new products for SMEs, particularly in key, underbanked regions.

EIB (€5.1 million – 2010-2020)

Provides loans and credit enhancement support in the form of interest-free loan co-financing of up to 10% of a traditional EIB loan to the PFIs, which passes this interest-free co-financing on to SMEs. The EU grant is also used as a risk-sharing cushion for the loans granted by PFIs to SMEs for up to 10 % of the sub-loan amount.
Technical assistance to PFIs to support the expansion of SME lending.

Results

For the period December 2010 – December 2016

Lending to PFIs

In 2011, the EIB signed a €15m finance contract with ProCredit Bank Georgia JSC, to finance Sub-Projects carried out either by SMEs (min. 70%) or entities carrying out priority Sub-Projects. This loan is fully disbursed and allocated. In December 2012, the EIB signed a second €10m finance contract with ProCredit Bank Georgia JSC.

In 2011, the EBRD adopted the “Georgian Agricultural Finance Facility” (GAFF, a joint initiative with KfW), a €40 million framework for on-lending to farmers and other agricultural entities in Georgia. By the end of 2014 the entire €40 million were disbursed to five PFIs (Bank of Georgia, TBC Bank, ProCredit Bank Georgia, VTB Bank Georgia and Bank Republic), GEL 244.9 million (€108.1m equivalent) were disbursed by PFIs in 15,535 sub-loans and 15,352 farmers and SMEs benefited from the GAFF finance.

Credit Enhancement support

By the end of 2016, ProCredit Bank Georgia JSC had allocated €330,714 of EU grants to 731 SMEs. The average size of the investment financed was €36,750.

By the end of 2014, the total amount of EUR grants allocated by PFIs for first loss under GAFF (net of the PFIs’ recoveries) was EUR 86,119. The average size of the investment financed was GEL 15,800 (€7,000 equivalent).

Technical assistance

GAFF incorporates technical assistance (completed in June 2013), provided by EU NIF (under the “Framework for Capacity Building to support Financial Intermediaries in Azerbaijan and Georgia”). The overall objectives of this assignment was to develop sustainable agri-lending in PFIs and to assist in strengthening agricultural value chains. The consultant introduced Value Chain Financing (VCF) to the PFIs, developed and shared proposals for VCFs and helped the interested PFIs to implement such lending schemes.