Interview with Valeriy Mayboroda, deputy head of the GUF
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The German-Ukrainian Fund has been working in Ukraine for more than 20 years. Founded in 1999 by the National Bank of Ukraine, the Cabinet of Ministers represented by the Ministry of Finance, and the German state development bank KfW, it became the analog of the latter in Ukraine. From the very start, the fund’s activities were aimed at supporting small and medium-sized enterprises (SMEs) in the country. However, it is only now that GUF came to the fore in public discussions, and its programs have attracted the attention of SMEs and financial institutions from across the country.
The discussion was sparked by the First Financial Fair held in Kyiv in April 2017, and several events with the participation of our partner banks. The GUF and its programs have been represented on the high level. Over the past 20 years few entrepreneurs knew about the Fund and its work because of limited communications.
Qualitative communication support and competent event organization by the Pleon Talan agency within the cooperation started earlier in 2017, provided the Fair and the subsequent events with the broad public attention. The GUF has established contacts with potential partners, signed cooperation agreements with Kyiv and Kharkiv state administrations. And, of course, it was possible to do the most important thing: attract representatives of small and medium-sized enterprises.
According to the economic laws, a strong small and medium business is the basis of a strong economy. It is now vitally important for Ukraine. It is the SMEs that create the bulk of jobs, produces the main revenues to the state budget and contributes to GDP.
On the other hand, their activities are not completely transparent. SMEs were uninteresting for banks in the pre-crisis period because of this very reason: the operating costs of processing and servicing the application were too high compared to the revenue. Therefore, banks have worked with large enterprises only for many years, ignoring SMEs. Now, as the crisis goes, we see over credited corporations with big debt problems and a viable small and medium-sized business that has successfully came through all the financial turmoil.
From the very beginning, the German-Ukrainian fund, by analogy with all European development banks, was aimed specifically at SMEs with their distinctive negative and positive features. And, just like the KfW in Germany, the GUF started working through partner banks in Ukraine: not creating a competition, but supplementing their loan offerings with own resources.
Today there are four GUF programs working in Ukraine. The last one among them, the Program for financing support of investment projects of small and medium-sized enterprises in priority areas, causes a special stir lately. Under the terms of this program, SMEs are credited in 4 priority sectors: industry, agriculture, energy, hotel and restaurant business.
The total amount of loan funds in the program is 300 million UAH, and the interest rate is up to 15%, below the average market level. The advantage is granted to investment projects, which imply to the purchase and modernization of equipment, production facilities, etc.
Investment loans create a basis for further development of the economy and financial stability. Especially if a loan is received by an enterprise that produces products for the national market. This helps to reduce the volume of imports, positively affects the price and financial stability of the country.
In addition, in order to encourage banks to cooperate with SMEs, the GUF introduced a system of discounts. If the bank has a significant share of investment loans in its loan portfolio, we provide it with a discount, which allows to increase bank’s margin. If the bank has a significant part of the investment loans in priority sectors, it receives an additional discount. And if the investment project creates jobs, the bank gets the third discount. In this way, we compensate for the SME appraisal cost. This helps both banks and business.
This year, the German-Ukrainian Fund and the European Union concluded an agreement for the currency losses compensation. According to it, we received a resource of 5 million EUR for two existing programs. At the time the currency risks are paid off primarily because of this cooperation.
On the other hand, we understand that Ukraine and Ukrainian entrepreneurs need to look for internal instruments of hedging currency risks, to be independent in this matter. As part of its strategy, the GUF develops and implements the hedging mechanism with the help of the National Bank of Ukraine. And if this succeeds, we will be able to attract significant investments to the country, since there are a lot of proposals for the cheap long-term resources in the West, but no mechanism for converting currency into UAH and the placement of these resources.
The GUF is developing a program for the transformation of these funds into UAH loans to finance investment projects. And I think that sooner or later we will come to be the independent development agency with a wide range of financial and consulting tools. From the very beginning of the GUF existence, we knew that the final stage of the organization’s “evolution” would be the transformation into the development agency.
Working in such formation would allow effective and quick fundraising from Western partners for SMEs investment projects, as it is done in other European countries. Together with our German partners, we continue to work towards realizing this goal.
During 2018, we plan to introduce mechanism on credit guarantees. If something happens with the credited enterprise, we will take on 50% of the loan repayment. Quite often entrepreneurs do not have sufficient material security, therefore perspective projects cannot receive loans.
However, there’s nothing new in such practice. Programs like this are being introduced by the Federal Development Bank KfW in Germany in cooperation with municipalities. It gives a resource through partner-banks in all lands, and each land adds interest rate compensation and additional collateral coverage in case of default. This creates a kind of synergy, which significantly increases the guarantees of risks for banks, encouraging them to work in the region.
Program for financing support of investment projects of small and medium-sized enterprises in priority areas turned out to be successful. Almost all resources have already been given to the partner banks: ProCredit Bank, Kredobank, and Ukrgasbank. We drew the KSCA to the project to reduce interest rates and the loans cost. This allowed starting lending to SMEs in Kyiv at the lowest interest rate in the country – only 7.5% per annum in UAH.
We plan to further develop the infrastructure, train partner banks and raise the level of financial literacy of borrowers. The number of partners will be increased to 20, as this affects the amount of lending and the capacity of the fund.
During the spring of 2018, the German-Ukrainian Fund will present the strategy until 2020. Throughout the rest of the year we plan to widen the SMEs lending Subsidy Program throughout Ukraine and bring even more opportunities for getting financial support for Ukrainian SMEs. It continues, as it always was with the German-Ukrainian Fund: unity for development.
