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•About programme |
••• UKRAINE MICRO LENDING PROGRAMME |
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Since 2000 the Ukrainian economy has experienced strong and stable growth. The importance of small enterprises for economic stability and growth is widely acknowledged. In Ukraine, less than 10% of GDP is generated by small enterprises; in western countries the figure tends to be well above 50%. There is thus undoubtedly a need to strengthen the SME sector in Ukraine. Nevertheless, Ukrainian micro and small enterprises (MSEs) still face numerous obstacles to their growth and development. One of the most important is the almost total lack of access to credit from the banking system. This is true for short-term working capital as well as for long-term investment capital. At the same time, Ukrainian banks, although having experienced vibrant growth during the past years, are still achieving only a low level of financial intermediation: Bank credit outstanding to the non-financial private sector represents less than 40% of GDP, whereas this indicator in Western Europe is well above 200%. Hence, initiatives by international financial institutions aimed at establishing relationships between MSEs and commercial banks, and providing the commercial banks with long-term credit lines for onlending, are of great importance for the country.
In order to improve the financing situation for small and medium-sized enterprises in Ukraine, in September 1996 the German government initiated the establishment of such a credit line for Ukrainian commercial banks, the German-Ukrainian Fund (GUF). The initial capital for this fund was provided by Kreditanstalt fur Wiederaufbau (KfW), the National Bank of Ukraine and the Ministry of Finance of Ukraine. The funds provided by Germany were made available to Ukraine free of charge as a non-repayable fund to promote Ukrainian MSEs and German-Ukrainian joint ventures. In December 1998 the European Bank for Reconstruction and Development (EBRD), in co-operation with the European Union's TACIS Programme and the United States Agency for International Development (USAID), launched the EBRD Micro Lending Programme, which was aimed at supporting Ukrainian small and micro businesses as well. As both of these programmes were managed by IPC, they were merged into one programme, the Ukraine Micro Lending Programme (UMLP). Nine partner banks are providing financing to MSEs in the framework of the UMLP: Raiffeisen Bank Aval (formerly Bank Aval; a partner bank since 1997), PrivatBank (since 1997), Bank Forum (since 2000), ProCredit Bank (since 2001), Bank Nadra (since 2003), Kreditprom Bank (since 2004), Kredobank (since 2006), Rodovid Bank (since 2007), and Megabank (since 2007). The banks receive systematic technical assistance aimed at enabling them to develop credit products that are suitable and accessible to the target group; to determine the real repayment capacity of potential borrowers and assess associated risks; and to manage, monitor and grow their loan portfolios. The type and intensity of technical assistance provided by IPC as the implementing consultant of the UMLP depends on the development stage of each partner bank. When co-operation starts with a new partner bank, the consultant - in close co-operation with the bank's management - plays an active role in almost all areas, such as staff recruitment and training, product development, the opening of new MSE lending units in bank branches, work flow organisation, loan approval in the credit committees, and the drafting of standards and guidelines for the newly created MSE lending department and its structural subunits. As bank staff gradually take over most of these management functions, the consultant reduces his/her presence in everyday operations, hands over decision-making authority for defined loan amounts, and concentrates more on training, assisting the bank in opening new MSE lending units, monitoring the loan portfolio, fine-tuning products and processes, and building in-house capacities that then - later on - take over responsibility for all these functions. The five partner banks which have been with the programme the longest, Raiffeisen Bank Aval, PrivatBank, Nadra Bank, Bank Forum, and Kreditprombank are already handling their MSE lending on a fully independent basis without assistance from the UMLP consultant. Kredobank, Rodovid Bank, and Megabank still receive active support in the area of training and in the analysis and assessment of agricultural loan projects. In all those banks, MSE lending has become a standard business that is fully integrated into the banks' overall structures, and already represents between 4 and 7% of their loan portfolio outstanding to non-financial private borrowers. Since mid-2006, the combined UMLP portfolio of all partner banks represents 2% of private banking sector credit. From the UMLP's inception in April 1997 to end of March 2008, about 562,000 loans totalling more than USD 4 billion were disbursed to Ukrainian micro and small enterprises. The businesses financed typically operate in the fields of trade, small-scale production, services and agricultural production. In 2007, average monthly disbursements amounted to approximately 13,000 loans at a total volume of above USD 100 million, compared to 65 loans per month in 1999. More than 151,247 clients have over 173,533 loans outstanding with a total volume of USD 1.4 billion. The average loan amount outstanding per client of roughly USD 8,700 is a clear indication that the partner banks are consistently serving the target group. Though the banks have achieved strong growth over the past years, the programme's portfolio at risk is still excellent, at less than 4.2%. This is thanks to the sound risk assessments carried out by highly qualified staff in the partner banks. Until late 2004, the UMLP partner banks focused on serving the MSE lending market in urban centres. Since 2005, the focus has shifted towards expansion to smaller towns and rural areas where farmers make up a substantial part of the target group, but to date have had no real access to credit. Therefore, IPC has further developed its credit technology, adapted it to the characteristics of agricultural businesses, and transmitted this knowledge to four partner banks (PrivatBank, Bank Nadra, Bank Forum and Kreditprom Bank). Over the course of three years, banks have extended approximately 14,000 loans to private entrepreneurs in the field of agriculture at a total volume of USD 99 million. Most of the borrowers had never had a formal relationship with a bank before. Most of them had been borrowing money from friends or on the black market at very high interest rates. Typical agricultural clients have a small farm where they raise livestock and cultivate various vegetables. The average loan amount is less than USD 7,000, and in most cases the maturity is only about one year. Due to good risk assessment techniques, the portfolio at risk remains low. |
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