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New fund will benefit SMEs in central and eastern Europe

As part of their joint effort to support the development of small and medium-sized enterprises (SMEs) and central and eastern Europe, the European Commission (EC) and the European Bank for Reconstruction and Development (EBRD) have reached an agreement to establish a 125 milli...

As part of their joint effort to support the development of small and medium-sized enterprises (SMEs) and central and eastern Europe, the European Commission (EC) and the European Bank for Reconstruction and Development (EBRD) have reached an agreement to establish a 125 million euro SME Facility for the 10 central and eastern European countries that are candidates for European Union (EU) accession. These countries include Bulgaria, Estonia, Czech Republic, Hungary, Lithuania, Latvia, Poland, Romania, Slovenia and Slovak Republic. The Acting Commissioner responsible for economic, financial and monetary affairs, Mr Yves-Thibault de Silguy, launched the joint facility in London together with Horst Köhler, President of the EBRD, during the Bank's annual meeting. EU support to SMEs in central and eastern Europe has been provided under the EU-Phare programme since 1990, mainly in the form of technical assistance and joint ventures between the EU and individual countries. The EBRD has also been supporting SMEs since its inception through small business programmes, equity investments in banks, credit lines to banks, trade-facilitation mechanisms and a considerable network of private equity funds. This joint facility will contribute to the economic transition of the central and eastern European countries and to the preparation of their accession to the EU. Its principal objective is to promote growth of the local small business sector, by providing access to stable loans and equity though the strengthening of local financial institutions. The Facility will provide incentives for financial intermediaries to embark upon new financing instruments and activities. It will enable local banks to strengthen their loan appraisal and monitoring, supervision and implementation skills, while country-based equity funds will help to encourage an increase in equity investments. Acting Commissioner de Silguy stressed the importance of a strong, vibrant SME sector for economic development, employment and adequate preparation for EU accession. "We are already working with my colleague Hans van den Broek, Acting Commissioner responsible for External Relations with central and eastern Europe, on a second phase of the project and I trust that the EBRD will continue to play a major part in supporting the facility in years to come," said Mr de Silguy. "Support for SMEs through a strategic, integrated, country-specific approach is one of the main priorities of the EBRD in its work to foster transition to market economies in central and east European countries. The Bank is placing renewed emphasis of the need to expand finance for SMEs and will increase its efforts to create a culture of SME support," said Horst Köhler. "Our efforts complement those of the EU in continuing to support the development of SMEs, which constitute a vital and dynamic element in the economies of the Bank's countries of operations. The SME Facility is to be followed by other programmes for SME finance in other countries of operations of the EBRD." The Facility's funds of 125m euro will be managed by the EBRD. The financing comprises 50m euro in the form of grants from the European Commission and 50m euro in credit lines from the EBRD, which is also providing 25m euro in fund investments. The EBRD and the Commission expect to initiate the programme during 1999 with at least 10 financial intermediaries. The programme will be expanded considerably in due course.