Financing SMEs and Entrepreneurs 2018

EBRD Small Business Initiative (SBI)

The EBRD

The European Bank for Reconstruction and Development (the EBRD) is a multilateral bank committed to the development of market-oriented economies and the promotion of private and entrepreneurial initiative in more than 30 countries from Morocco to Mongolia and from Estonia to Egypt. The Bank is owned by 66 countries, the EU and the EIB. To respond to the global challenges faced by small businesses, the EBRD, through the Small Business Initiative (SBI), blends its own resources with donor funds to deploy an integrated toolbox of activities to increase access to finance and advice for SMEs, including:

• Financing through local financial institutions through the EBRD’s network of over 200 partner financial institutions, including local banks, microfinance institutions, leasing companies, private equity funds and others;

• Co-financing and risk-sharing with partner financial institutions, deploying EBRD’s risk-bearing capabilities to expand lending to SMEs and assist partner financial institutions to better manage their capital and risk;

• Direct financing of individual banking operations by the EBRD, integrated with business advisory support to improve SMEs’ operational performance, including through adoption of higher standards of corporate governance and financial transparency;

• Provision of business advice and know-how to SMEs on a cost-sharing basis through local consultants and international industry advisers, covering areas such as strategy, operations, financial reporting, marketing, energy efficiency and others;

• Targeted policy dialogue coming alongside investments to engage effectively with policy makers and bridge the gap between policy and private sector experience.

The Bank deploys a combination of instruments including debt, equity, mezzanine finance and other forms of risk capital.

From January-September 2017, the EBRD extended EUR 460 million in direct and indirect finance to small firms in 71 transactions, accounting for 33 per cent of its projects. Overall in 2017, the Bank expects to provide more than EUR 1.42 billion in finance to the SME sector. Local currency lending plays an important role, and represents about one in ten of the debt transactions in the SME sector this year.

Addressing areas ranging from business strategy to marketing, quality management, export promotion or energy efficiency, in the first three quarters of 2017 the Bank drew on the expertise of thousands of local consultants and international advisers to help small firms reach their potential for growth and employment. The EBRD carried out 1 473 projects connecting SMEs to local consultants for specific business advice, and 99 projects providing medium-sized firms with the industry expertise of international advisers.

Product innovation

Product innovation plays a key role in the development of the SBI on the ground, drawing on the multi-faceted experience of the EBRD in SME support and ensuring responsiveness to SMEs needs and guided by the principles of i) country-focused support that is appropriate to local circumstances; ii) sustainability consistent with a private-sector focus, maximising the leverage of private capital; and iii) impact that is measurable and demonstrable.

Key examples of this approach include:

• the EBRD’s flagship Women in Business Programme, promoting women’s entrepreneurship through improved access to finance and advice. To date, the Women in Business programme has been rolled out in 17 countries, making over EUR 500 million of finance and EUR 70 million of donor funding available to support over 30 000 women-led SMEs;

• the EBRD’s Blue Ribbon Programme, providing a unique combination of financing and advisory products targeting high-growth enterprises over a 5-year period that are tailored to their needs;

• expanded local currency lending through the EBRD’s SME Local Currency Programme, a USD 500 million scheme that aims to develop capital markets and encourage local currency lending in the EBRD’s countries of operations. The programme combines long-term financing available through local banks, supported by a donor-funded first-loss risk cover, with availability of business advice for SMEs and reforms and policy support to local authorities;

• supporting SME access to trade finance and trade-related know-how through Trade Ready, which assists partner financial institutions under the EBRD’s Trade Facilitation Programme (TFP) to expand the reach of their trade finance products to SMEs, as well as offering a wide range of trade-related advisory services and training;

• working in tandem with local banks to share the risk of financing local companies through the EBRD’s Risk Sharing Facility.

Looking ahead

The EBRD considers five key thematic priorities as it intensifies and deepens support to SMEs through the Small Business Initiative, promoting both emerging future leaders within the region and targeting underserved segments within the SME sector, such as women entrepreneurs, displaced entrepreneurs and regional businesses. These priorities include:

• Competitiveness: Insufficient access to finance and know-how poses significant obstacles for SMEs that prevent most of them from growing and becoming more competitive, particularly at the international level. Providing appropriate financing tools and access to business advice helps firms improve their management practices, achieve international standards and stand ahead of their peers;

• Trade promotion: The majority of SMEs in the EBRD’s countries of operations produce mainly for domestic markets. Improving competitiveness on domestic and international levels, as well as developing export readiness, serves to open up new markets for SMEs as well as contributing to economic diversification;

• Inclusive growth: Taking SMEs as a potential driver of economic inclusion, addressing underserved groups within the SME sector is integral to economic development. Creating equality of opportunity for women and youth in business, as well as increasing access for SMEs in regional areas is a key element in a modern, well-functioning market economy and necessary for sustainable growth;

• Corporate governance and standard setting: Promoting adoption of best practices for corporate governance and enhancing transparency and financial management, such as through introduction of IFRS accounting, is an important part of improving long-term SME competitiveness and equipping smaller businesses to make the jump to medium-sized or even bigger levels;

• Business environment: The challenges facing small businesses are complex. By sharing EBRD’s legal and economic experience with policy makers, country-based policy engagements can lower the barriers SMEs face and build sound institutions to support the SME sector in the long term.

For more information on the Women in Business and the Local Currency programmes: http://ebrdwomeninbusiness.com, http://www.ebrd.com/localcurrency