The EIB Group, which consists of the European Investment Bank (EIB) and the European Investment Fund (EIF), announced last week that it has signed the first agreements with ProCredit Holding and its subsidiaries in order to support €100 million of lending to small and medium-sized enterprises (SMEs) in Georgia, Moldova and Ukraine. The agreement was signed under the EU4Business initiative.

These agreements are groundbreaking for these countries as they will enable ProCredit banks in these countries to provide access to financing for local SMEs by providing a 70 percent guarantee on each loan and subsequently extending financing on favourable terms with reduced collateral requirements.

The agreements are expected to contribute to the economic development of the given countries by creating jobs and new business opportunities. The initiative suggests that the EU is focused on strengthening economic development in the countries that have recently signed Association Agreements with the EU, namely Georgia, Ukraine and Moldova. Targeting the SMEs in these countries by providing financial and technical support is an attempt to achieve its goal.

“Support for SMEs is one of the EIB Group’s priorities because by funding them we are boosting economic growth, innovation and employment. These guarantee agreements with our long-standing partner ProCredit Holding and its subsidiaries will help us to reach SMEs in the countries that have signed an Association Agreement with the EU, increasing access to crucial long-term financing in order to help them continue to develop new projects and generate growth”, commented the EIB Vice-President Vazil Hudak.

Certainly the employment opportunities that will arise as a result of the agreement will benefit the three countries. Although Moldova is actually performing quite well in this respect with an unemployment rate of 3.5 percent, Ukraine and Georgia can definitely benefit from a boost in employment with unemployment rates at 9.1 percent and 11.8 percent respectively.

These agreements will also significantly enhance the economic performance as a whole of the three countries. According to the the World Bank, SMEs contribute up to 60 percent of total employment and up to 40 percent of national income (GDP) in emerging economies. However, in Ukraine, Georgia, and Maldova, SMEs have yet to gain the same status as their counterparts in other European countries.

In Ukraine, for example, even though SMEs constitute 99.8 percent of Ukrainian enterprises, the contribution of SMEs to the economy is estimated to be only 15 percent compared to the European average of 50-70 percent. In Georgia the SME’s contribute only six percent of the GDP even though they amount to 43 percent of the private sector in terms of employment. In Moldova the figure is slightly higher with SMEs contributing to about 30 percent of the national GDP, although still significantly lower than the European average.

Head of the Mandate Management Department at the EIF Hubert Cottogni also heaped praise on the initiative, stating, “This represents an important milestone for the EIB Group as these are the first guarantee agreements which EIB and EIF are jointly supporting in Georgia, Moldova and Ukraine. Thanks to the EU’s financial backing, these transactions will provide significant support to businesses in these countries at a time when access to finance remains a key concern for many companies”.