Report: Ukraine should channel support to SMEs through big banks

May 12, 2017

This Kramatorsk-based venture produces, installs, and provides maintenance for windmill electric generation units.

Ukraine could give a significant boost to its struggling small- and medium-sized enterprises in the Donbas by channeling support for them through the country’s two biggest state-owned banks, a new report has recommended.

According to the report, which was prepared by the Institute for Economic Research and Policy Consulting for UN Development Programme in March 2017, the newly-nationalized PrivatBank and the state savings bank Oschadbank would be the ideal conduit to pump funds into the more isolated areas of the country.

Small- and medium-sized businesses in small towns, especially in the east of the country, have little access to the amount of lending support from banks that they need to grow. However, the report found that Oschadbank and PrivatBank are often the only two banks with branches in many smaller towns, making them the best option for providing aid to entrepreneurs.

As well as loans, the state should use the banks to provide micro-startup loans to emerging businesses, the report reads, describing Oschadbank and PrivatBank “as natural partners for any SME support program attempting to reach small towns in the Donbas.”

Support could also come in the form of a special financial risk insurance program tailored to the needs of regional SMEs. This program could be financed by the central and local governments, and international donors, according to the institute’s report.

Other forms of SME support include advisory services for SMEs in the preparation of significant credit applications and drafting business plans, which would help them secure loans.

The report recommends that local governments take the lead in supporting SMEs. Donetsk and Luhansk oblast loan programs can serve as pilots, and joint funding by oblast and local governments and donors is worth considering after successful trials, the report reads.

In general, SME development in Luhansk and Donetsk regions has encountered the same problems as in other Ukrainian regions, the report reads. At the same time, the situation here has been exacerbated by the armed conflict.

The report by the Institute for Economic Research and Policy Consulting was prepared for the United Nations Development Programme in Ukraine and funded by the British Embassy in Ukraine.

 “UNDP’s approach to the economic recovery of the Donbas is based on the principles of sustainable economic development, and focuses on support for small- and medium-sized businesses,” says Mutafa Sait-Ametov, the Coordinator at the UNDP Recovery and Peacebuilding Programme in the east of Ukraine.

“The current environment requires the diversification of production and markets for ready-for-sale products, the introduction of new technologies, including “green technology”, as well as investment in human capital. The availability of financing for local entrepreneurs remains limited, so innovative tools for SME support are needed to enable risk-sharing and to open up real opportunities to access finance resources on terms that are acceptable to businesses.”

Since 1993, UNDP has been assisting the government of Ukraine in developing solutions for the transition from a planned to a market economy and for establishing democratic systems.

UNDP’s engagement and partnership with national and sub-national institutions has been a catalyst for laws and policies as well as strengthening institutions in preparing the country for deeper global integration.

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