EU Bank Introduces Financial Instruments to Support Georgian SMEs

Delivering on its key objective of private sector development in Georgia, the EIB Group (European Investment Bank and European Investment Fund) is implementing two new programs developed jointly with the European Commission, both of which were prepared in the context of the Association Agreement of Georgia with the EU: the DCFTA Initiative East and the EU Research and Innovation Program Horizon 2020: InnovFin – EU Finance for Innovators.

The two program were presented at a conference held on May 8 in Tbilisi, bringing together around 200 representatives of business, banks, microfinance institutions, financial advisors and industry associations. The conference guests were addressed by high ranking representatives of the European Union, the Georgian government, and the EIB: Janoš Herman, Ambassador of the European Union to Georgia; Dimitry Kumsishvili, First Vice Prime Minister and Minister of Finance of Georgia; Levan Davitashvili, Minister of Agriculture of Georgia; Giorgi Cherkezishvili, Deputy Minister of Economy and Sustainable Development of Georgia; and Heinz Olbers, Director of the Neighboring Countries Department of the EIB.

The Deep and Comprehensive Free Trade Agreement (DCFTA) Initiative East aims to strengthen economic development in the countries which have signed an association agreement with the EU, namely Georgia, Moldova and Ukraine, by providing financial and technical support targeted at small and medium-sized enterprises (SMEs) in these three countries.

The EIB Group is joining forces with the EU’s Neighborhood Investment Facility (NIF) to provide a package of instruments designed to support the three countries in addressing the market needs and underpin the objectives of the DCFTAs, aiming for the progressive removal of barriers and creation of the necessary conditions to allow SMEs to benefit from the new market environment.

The overall objective of this initiative is to support economic growth and the generation of employment in the three countries. It will also enhance access to finance in the form of improved lending terms and conditions and provide first loss SME portfolio guarantees, enabling local intermediary banks to take on more risk and reach out to underserved segments of the economy.

The initiative will strengthen the capacity of the private sector, in particular SMEs, to compete in local and international markets, by:

Offering SME loan guarantees to local banks and other financial intermediaries in cooperation with the European Investment Fund (EIF), enabling them to improve lending terms and conditions and thus providing wider access to finance for SMEs.

Providing technical assistance to counterpart financial intermediaries via institutional and capacity-building activities and advisory services to the small and medium-sized enterprises at regional and local level by promoting rural development with a particular focus on agri-food value chain development.

Supporting micro-enterprises through local microfinance institutions.

"InnovFin – EU Finance for Innovators" is a joint initiative launched by the EIB Group in cooperation with the European Commission under the EU Research and Innovation Programme Horizon 2020 and consists of a series of integrated and complementary financing tools and advisory services covering the entire value chain of research and innovation in order to support investments from the smallest to the largest enterprise.

In February, the European Investment Fund (EIF) and ProCredit Bank JSC (Georgia) signed the first agreement for SMEs and small midcaps in Georgia under InnovFin. The agreement, supported by the InnovFin SME Guarantee facility is expected to enable ProCredit to provide EUR 50 mln in loans to innovative companies over the next two years. This first InnovFin SME Guarantee Facility in Georgia was presented during the conference.

“It is in the interests of both Georgia and the EU to work towards strengthening private businesses in Georgia,” said Dario Scannapieco, EIB Vice-President responsible for the financing of SMEs and midcaps. “A well performing private sector, represented particularly by SMEs, is strategically important for growth and job creation in Georgia and for further diversification of the country’s economy”.

“These programs are further proof that the EU is committed to supporting the development of Georgian SMEs,” said Ambassador Herman. “In close cooperation with the EIB, we provide tangible support to innovative businesses that seek to take advantage of the new opportunities with the EU."

“Projects of great significance for Georgia are being implemented with the financial support of the EIB in roads, energy, water and municipal infrastructure sectors,” said Minister Kumsishvili. “The EIB is also supporting the country’s private sector. The operations and future plans of the EIB manifest themselves in the great support for the Four Point Reform Agenda initiated by the Prime Minister of Georgia for the acceleration of infrastructure projects and support for entrepreneurship”.

“The tools presented today are tangible for raising private sector competitiveness, absorbing innovation and for developing the right skills, it is also opportunity for wider access to finance,” said Giorgi Cherkezishvili, Deputy Minister of Economy and Sustainable Development, Ministry of Economy and Sustainable Development of Georgia. “I hope the startups, SMEs, mid-caps, as well as large companies and commercial banks will take the advantage from the opportunity the EIB is providing”.

“The Government of Georgia pays huge attention the development of agriculture sector, one of the most important priorities for the Georgian government is to support farmers and SMEs to have access to the affordable finances,” said Minister Davitashvili. “After signing the DCFTA agreement, export to the EU has been increasing. In order to fully enjoy the benefits, firstly, Georgia will have to comply with the EU norms and regulations and secondly, should have quality products to be competitive in the international market. After successful negotiations with EIB, the Government of Georgia concluded financing agreement worth EUR 100 million. The EIB credit facility will be diverted for the development of Georgian horticulture, including nuts, and wine value chains. With long-term financing schemes, farmers and SMEs will have the possibility to produce high value crops and quality products to gain full access to the international market and with allocated funds, in close cooperation with the banking sector, we will make huge impact for the positive development of the agro-food sector”.

The EIB, the European Union’s bank, finances projects in Georgia on the basis of the EU External Lending Mandate. The mandate provides the EIB with a guarantee covered by the EU budget for projects in the areas of social and economic infrastructure, local private sector development, in particular SMEs, and climate change mitigation and adaptation.

The EIB is a AAA-rated, policy-driven EU financial institution raising funds in capital markets to on-lend to eligible investments supporting EU policies and priorities. The EIB passes on the financial advantage it obtains through benefits such as attractive interest rates and long maturities to projects that score highly in terms of EU objectives and are consistent with the Bank’s commitment to supporting sound, sustainable investments. The EIB’s extensive experience in financing projects, its in-house sector expertise and its deep knowledge of European policies facilitate the identification of projects that match both national and EU priorities. The EIB’s project appraisal covers technical, economic, financial, environmental and social aspects as well as credit risks, provides for the appropriate mitigants and conditionality and helps structure projects in line with EU standards. The EIB thus acts as a flag carrier for EU policies outside the EU, contributes to the dissemination of best practices and facilitates the participation of other financiers in EU priority projects.

The European Investment Fund (EIF) is part of the European Investment Bank group. Its central mission is to support Europe’s micro, small and medium-sized businesses (SMEs) by helping them to access finance. EIF designs and develops venture and growth capital, guarantees and microfinance instruments which specifically target this market segment. In this role, EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth, and employment.

Since the beginning of 2016, all EU activities that support small and medium-sized enterprises (SMEs) in the Eastern Partnership countries have come under the umbrella of EU4Business.

EU4Business provides:

1. Support to national authorities, helping to change and improve laws and regulations, building a better regulatory framework to improve investor confidence;

2. Support to Business Support Organizations (BSOs) as membership organizations enable a dialogue between government and business. EU4Business can organize PPD (Public-Private Dialogue), co-operation and networking;

3. Direct support to small and medium-sized enterprises (SMEs), for example by providing finance, training, coaching and advice, and import and export support and matchmaking.