MICROCAPITAL BRIEF: EIB Group’s DCFTA Initiative East, InnovFin Supporting SMEs in Georgia, Moldova, the Ukraine; ProCredit Secures $56m Partial Loan Guarantee

Both arms of the EU-affiliated EIB Group, the European Investment Bank (EIB) and the European Investment Fund (EIF), are implementing two programs intended to fortify the private sectors of Georgia, Moldova and the Ukraine [1].

The first program, the Deep and Comprehensive Free Trade Agreement (DCFTA) Initiative East, aims to stimulate economic growth in the three countries by guaranteeing loans made by local banks to small and medium-sized enterprises (SMEs) in addition to supporting SMEs through “technical assistance via institutional and capacity-building activities.” More broadly, the DCFTA offers Georgia, Moldova and the Ukraine “a framework for modernising their trade relations and for economic development by the opening of markets via the progressive removal of customs tariffs and quotas, and by an extensive harmonisation of laws, norms and regulations in various trade-related sectors [11].”

The second program, known as EU Finance for Innovators or “InnovFin,” is intended to help SMEs access finance more easily through the implementation of “guarantees for financial intermediaries, direct loans to enterprises and advisory services.” In February, for example, EIF agreed under this program to accept half of the risk of loans disbursed by ProCredit Bank Georgia totalling up to the local-currency equivalent of USD 56 million over two years [1, 9]. In addition to the EIB Group, InnovFin is backed by the European Commission (EC), the executive body of the EU.

Established in 1998, ProCredit Georgia is a member of Germany’s ProCredit Group. ProCredit Group, which describes its work as “development-oriented,” provides financial services to SMEs via 21 banks in Eastern Europe, Latin America and Africa [10]. As of 2016, ProCredit Georgia reported total assets of GEL 1.4 billion (USD 579 million), deposits of GEL 733 million (USD 304 million), a gross loan portfolio of GEL 875 million (USD 364 million), return on assets of 2.0 percent and return on equity of 14 percent [2, 8].

Created in 1958, the European Investment Bank (EIB) serves as the long-term lending bank of the EU. In addition to supporting projects in EU member states, its main priorities are financing investments in probable future member states and EU partner countries, principally in the area of SMEs. According to its website, “the EIB operates on a non-profit maximizing basis and lends at close to the cost of borrowing.” The total subscribed capital of the bank was EUR 243 billion (USD 272 billion) as of December 2016 [3, 6].

Established in 1994, the European Investment Fund (EIF) provides risk finance to organizations that lend to European SMEs. As of 2017, its shareholders are EIB (65.1 percent); the EU, represented by the European Commission (24.3 percent); and 31 financial institutions from EU member states plus Turkey. As of 2017, EIF has total authorized capital of EUR 4.5 billion (USD 5 billion) [4, 7].

By Matthew O’Neill, Research Associate

Sources and Additional Resources:

[1] EU Bank Introduces Financial Instruments to Support Georgian SMEs:
http://georgiatoday.ge/news/6501/EU-Bank-Introduces-Financial-Instruments-to-Support-Georgian-SMEs

[2] MICROCAPITAL BRIEF: TBC Bank to Acquire ProCredit Bank Georgia’s Microcredit Portfolio:
https://www.microcapital.org/microcapital-brief-tbc-bank-to-acquire-procredit-bank-georgias-microcredit-portfolio/

[3] MICROCAPITAL BRIEF: Part of $38b Commitment From European Investment Bank, World Bank, European Bank For Reconstruction and Development To Support SMEs:
https://www.microcapital.org/microcapital-brief-part-of-38b-commitment-from-european-investment-bank-world-bank-european-bank-for-reconstruction-and-development-to-support-smes/

[4] MICROCAPITAL BRIEF: European Commission, European Investment Fund (EIF) to Guarantee $261m through European Programme for Employment and Social Innovation (EaSI), Supporting 20,000 Microenterprises via Romania’s Nextebank, 5 Western European Microfinance Institutions (MFIs):
https://www.microcapital.org/microcapital-brief-european-commission-european-investment-fund-eif-to-guarantee-261m-through-european-programme-for-employment-and-social-innovation-easi-supporting-20000-microenterprises-vi/

[5] Microfinance Information Exchange (MIX), ProCredit Georgia:
https://www.themix.org/mixmarket/profiles/procredit-bank-geo

[6] European Investment Bank, 2016 Financial Report:
http://www.eib.org/attachments/general/reports/fr2016en.pdf

[7] European Investment Fund, 2017 Register of Members:
http://www.eif.europa.eu/news_centre/publications/register_shareholders.pdf

[8] ProCredit Georgia Consolidated Financial Statements, 2016:
https://procreditbank.ge/admin/files/compliance/PCB_Audit%20Repor_%20&_%20IFRS_FSs_%202016.pdf

[9] EU and EIB Group Join Forces to Support More Investment:
http://www.eib.org/infocentre/press/releases/all/2014/2014-134-eu-and-eib-group-join-forces-to-support-up-to-eur48-billion-in-r-i-investment.htm

[10] MICROCAPITAL BRIEF: Equity Group Acquires ProCredit Bank Congo to Expand to Democratic Republic of the Congo:
https://www.microcapital.org/microcapital-brief-equity-group-acquires-procredit-bank-congo-to-expand-to-democratic-republic-of-the-congo/

[11] The Deep and Comprehensive Trade Area (DCFTA):
https://trade.ec.europa.eu/doclib/docs/2013/april/tradoc_150981.pdf

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