In order to ramp up lending to the economy of Ukraine and provide financial support to small and medium-sized enterprises in Ukraine (hereinafter referred as SMEs), the German-Ukrainian Fund (hereinafter referred as the GUF) jointly with the Cabinet of Ministers of Ukraine represented by the Ministry of Finance of Ukraine entered into a loan agreement worth EUR 10 million and a grant agreement worth EUR 2 million with the Kreditanstalt fur Wiederaufbau (Reconstruction Credit Institute) (KfW) to fund a project to support small- and medium-sized enterprises of Ukraine (hereinafter referred as the Project).

The funds will be funneled into SMEs’ investment projects via GUF’s partner banks in Ukraine in hryvnias and euros, and the granted funds will be spent on financing related measures to implement the Project, in particular, on consulting services for GUF’s partner banks and SMEs.

As a result, together with financial support, consulting services regarding raising the GUF funds to implement investment projects will be provided to small and medium sized enterprises under the Project.

The terms of the Project provide for the possibility of putting a cap or a limit on an interest rate for loans granted to SMEs in order to facilitate their access to loans to fund investment projects. The interest rate will be set by the GUF’s supervisory board along with the approval of loan-related products under the Project.

It should be noted that under the Program the GUF uses a similar mechanism to set a limit on an interest rate for loans granted to micro-, small and medium-sized enterprises in the priority industries.

An important prerequisite for putting a cap on an interest rate for hryvnia loans granted to SMEs under a project was the introduction of a mechanism allowing for the transfer of foreign exchange risk from partner banks to the GUF that will fully assume foreign exchange risk. This move allows the bank partners to reduce an interest rate for loans granted to the final borrower as they do not charge risk premium for risk of possible losses arising from movements in the exchange rates. Eliminating foreign exchange risk makes it possible to reduce an interest rate to the level that is significantly less than a market rate.

Under the terms of the Project, loans in the local currency will be provided to small- and medium-sized enterprises employing up to 250 people for up to five years and in an amount that does not exceed an equivalent of EUR 250,000.

The Project is to be implemented through the GUF’s Ukrainian partner banks based on the second level principle. In order to participate in the Project, SMEs’ representatives should apply to a partner bank to get information about the procedure of applying for a loan.

As of today, the following Ukrainian banks have achieved the status of partner banks with the GUF:
1. PJSC Megabank.
2. PJSB Kyivska Rus.
3. PJSC Kreditprombank.
4. PJSC ProCredit Bank.
5. PJSC Ukrainian Professional Bank.
6. PJSC Zlatobank.
7. PJSB Ukrgasbank.

For reference: The GUF was established in 1999 within the framework of the Transform programme of the Federal Government of Germany as a special financial institution to support the reform process in Ukraine. The GUF was founded by the Kreditanstalt fur Wiederaufbau (Reconstruction Credit Institute) (KfW), the National Bank of Ukraine and the Cabinet of Ministers of Ukraine represented by the Ministry of Finance of Ukraine.

The main objective of the GUF is to provide financial support to SMEs in the form of loans through bank partners to make investments in fixed and working capital.