Expert opinion

There is state support for micro, small and medium-sized businesses this year one of the priority issues of the Government. Creation of new jobs, new production, development of the service sector, opening of new sales markets are strategic issues for the economy of Ukraine during the war. About how Ukrainian banks support micro - , small and medium-sized enterprises, about the present and future of small business prospects - our conversation with Tetyana Kornienko, Head of the Association's committee of Ukrainian banks on MSME/SME issues, Director of the Department of Small and of medium business of "Ukrgasbank".

Mrs. Tetyana, how does the state of war affect the activity and turnover of small businesses? medium-sized business in Ukraine? What areas of business are most affected by restrictions and regulations related to martial law?

The challenges faced by business during wartime are the same for all segments. But small and medium-sized businesses are more sensitive to all these issues, because it has a smaller airbag, fewer resources to deal with related issues with the conduct of economic activities during the war, reconfiguration of production processes, increased sensitivity to price fluctuations, relationships with counterparties, dependence on partnership relations and other issues.

What measures are taken by the Government of Ukraine to support small and medium enterprises business with the participation of the banking sector? That banks, cooperating with the Government, can offer small and medium businesses?

I believe that the Government uses quite effective mechanisms with the help of banking systems. We all remember the beginning of the war in February 2022. This is the period when farmers were preparing for the sowing campaign.  In the spring of 2022, the Govt set the banks the task of providing financial support to farmers through the state credit program "Affordable loans 5-7-9%", was implemented guarantee mechanisms of the Cabinet of Ministers of Ukraine. The banking system had to to readjust very quickly, especially state banks, because they were the main supporting banks for the Government and business in the first half of 2022 year If you look at the statistics of the growth of the loan portfolio, then until May In 2022, the increase in the loan portfolio was mostly in state banks –  "Privatbank", "Oschadbank", "Ukrgasbank". We had something important ahead of us the task is not to lose crops in the country where the war started. we understood that the spring period is very short for farmers, they cannot wait, conditionally say, until August, when the banking system resets and the banks start provide funds. The agrarians at that time had a very difficult situation, because implementation remaining production stopped because of the war, money for the implementation of sowing the company did not have a campaign.

Then the Government allowed lending to farmers with a guarantee of the Cabinet of Ministers, which covered 80 percent of credit risk. For example, "Ukrgasbank" quickly reconfigured credit processes. In the spring of 2022, the bank issued twice as many loans, than issued for the whole of 2021. Loans were granted to everyone who needed them - both large agricultural enterprises and small farms. For comparison, if before the full-scale invasion, "Ukrgasbank" issued loans to small and medium-sized businesses in the amount of about UAH 2.5 billion, then in the spring of 2022 alone, the bank issued about 4.5 billion such loans.

State credit and grant programs for micro, small and medium enterprises of business in the conditions of war give the opportunity to small and medium-sized businesses to restart your business, start producing new types of products, enter new markets.

The program "Affordable 5-7-9% loans" exclusively for micro, small and medium-sized enterprises. Office Ministers have changed the rules governing the provision of financial state support business The program will focus exclusively on micro, small and medium enterprises. The relevant resolution was adopted at the government meeting on December 27. How will it affect for the development of MSMEs? How, in your opinion, will the state credit system change program "5-7-9%" this year?

This will have an unequivocal effect in that it will provide certain guarantees for micro-, small and medium business. The support program will remain will help the business develop, grow, and support it in the future in these difficult times. We understand that the state budget has certain limitations. IMF assistance is very important. Of course, we understand that for the entire business war imposes its negative imprint, but micro, small and medium business is the most vulnerable. Therefore, this business segment needs more state support. 

At the beginning of the full-scale invasion, one of the main issues was the question food safety, in particular, certain types of goods have disappeared from our stores. The state had to support, including, large trade networks, to ensure the uninterrupted supply of food products. Also, we remember when there were problems with the supply of gasoline and imported goods. Then, too, certain state support was provided to large companies in order to so that they have funding for a period to reconfigure logistics and its business processes. But, unfortunately, the full-scale war has been going on for two years years So, given the limited budget, it was decided to focus the "5-7-9%" program specifically for micro, small and medium businesses.

What changes in banking legislation could help improve the situation for small and medium-sized businesses?

The banking community has a vision of improving legislation in this area. The Association of Ukrainian Banks is always in a constructive dialogue with the National Bank of Ukraine. There is a common understanding that the banking system must work within a certain framework, with certain restrictions, so that the risks for of the banking system were minimal or perceived for the system as a whole. Of course, we have requests to the NBU, to the Cabinet of Ministers regarding certain regulations. The banking community constantly generates certain proposals, we are constantly concerned the question: what do we need to change in order to improve financial, investment climate in the country? Therefore, this year we will continue to develop proposals with specific mechanisms and send them to the NBU and the Cabinet Ministers of Ukraine.

Can you give an example?

Yes of course. Currently, our country needs military insurance more than anything else risks This topic does not escape the lips of all financiers and businessmen of the country. Because the insurance of military risks and reinsurance of the risks of our insurers companies, this is probably the number one question in the economy, which should be decided at the state level.  After all, banks or insurance companies independently will not solve this issue, because it has a state level. Investors, business should generally feel a little safer even during martial law. When they will understand that there is a war in Ukraine, there are certain risks, but in terms of war risks, their investment is insured, then they can to invest in Ukraine even during the war. This issue needs careful consideration miscalculation, study, but delay making a decision on implementation war risk insurance mechanisms are not worth it, because we all understand that our economy needs investments, needs new productions, protection logistic ways.

If this war risk insurance mechanism is implemented in Ukraine, then this will give an impetus, at least, to a gradual increase in the volume of internal and foreign investment?

Of course. But not only military insurance will contribute to the inflow of investments risks For example, let's take the problem of humanitarian demining of the released territory, primarily agricultural land. "Ukrgasbank" made a credit product for demining these territories. But in communication with farmers, we hear that in the matter of demining they expect the help of the state. Almost no one is not ready to demine agricultural land for credit funds. This is a problem. Part of the farmers carry out demining by their own forces, but without involving certified ones companies These are, of course, risky things, because then there are explosive objects, which were not destroyed. According to various experts, the problem is humanitarian demining territories for us for decades. Our state is international the community must understand that a lot of land in Ukraine needs to be demined. These polluted lands that we need to free from explosive harmful devices, will become more as the territory of Ukraine is de-occupied. They carry not only a mortal threat due to detonation, but also pollute the soil harmful chemical elements. In general, whether it will be possible to grow agricultural products on lands after demining is a question that must also be thought about. After all there are heavily polluted lands due to hostilities and mining. That is why it is necessary implement insurance mechanisms against war risks, certain programs compensation for the damage caused. We are currently negotiating with international ones institutions that are ready to provide grants for agricultural demining lands Because there is land, but it cannot be used because of pollution. Therefore, it must be cleaned, prepared and used so that our Ukrainian the land worked for our GDP. If we look deeper, the demining of territories, agricultural land - these are working months, taxes, this is our business. This is a huge problem, the solution of which is already estimated in billions of dollars and in tens of years. That is, we can say that de facto a peculiar one is already emerging the "demining market", which includes certified demining companies territories, manufacturers of special equipment, companies that dispose of explosives subjects, companies engaged in cleaning the soil from harmful substances. Therefore, at the state level, it is necessary to adopt regulatory norms that regulate the process of demining areas so that it is not chaotic, so that it is possible attract investment funds. We know that the Cabinet of Ministers is working on normalization of this process, so that this tool, the demining market, will work in Ukraine. We discussed this issue both with the Ministry of Agrarian Policy and the Ministry economy, and with the association of trade unions - everyone understands the problem and is working on the search for effective mechanisms.

Micro, small and medium business is not only the agricultural sector. What other areas which sectors of the economy in which SMEs operate need support?

If we talk about "Ukrgasbank", then we provide support to SMEs that are working in almost all sectors of the economy. We have fast microloans for microbusinesses, decisions on which are made in 1-2 days. We have a universal credit service line for micro, small and medium businesses. This applies to all enterprises: both production and trade. Everyone needs support in one way or another, especially when they face the issue of entering new markets, development, expansion of your enterprise or changes in conditions from counterparties. These are the main ones issues that usually require additional funding. A lot manufacturers who have reconfigured their enterprises for new foreign markets and expand this direction. Or they started producing new types of products for domestic use consumption. We lend up to five million hryvnias without collateral with involvement guarantees from the Cabinet of Ministers of Ukraine, and all investment projects we we lend with a pledge of the property, which, in fact, is bought for investment funds. By the way, the mechanism used by almost all Ukrainian banks are guarantees of the Cabinet of Ministers of Ukraine covering up to fifty percent credit project risk.

We have a great program with the Export Credit Agency. EKA and earlier worked, but it was in 2022 that it was rebooted. Conditions have also changed cooperation, and a toolkit that helped SMEs enter foreign markets, so EKA started working on a large scale with new strength. Already in 2023, "Ukrgasbank" chose his limit of 200 million hryvnias, which was provided by the Export Credit agency" and increased it to UAH 400 million. What is this tool? He helps to credit the execution of export contracts through bank financing without an additional deposit, because the deposit is provided by EKA insurance. So at in the presence of a foreign economic contract with our client, he receives financing for its implementation without collateral at all.  Funding limits up to 20 million hryvnias. A larger amount requires individual consideration and making a decision, but this is also possible. This lending program is very demanded by customers. The range of products that are exported abroad, wide: these are food products, cosmetic products, clothing, paper products, wood, rubber, rubber, ferrous metals, industrial equipment and equipment, toys, smart fireplaces, optical and medical devices, etc.

Which international organizations and foundations provide support to small and medium-sized enterprises business in Ukraine?

We are constantly negotiating with international organizations regarding them involvement in the financing of SMEs, implementation of new programs. Enough now there are many such organizations that work with Ukraine. In particular, clients of "Ukrgasbank" can get  funding and grant support from the German government. This became possible thanks to the cooperation between Ukrgasbank and Deutsche Sparkassenstiftung für internationale Kooperation (DSIK), which are within the recently signed the contract will implement an important project for business and the economy of Ukraine "Access to financing and support of sustainability of MSMEs in Ukraine II".

The grant component of this program, which is provided for the implementation of credit project, is 20 or 30 percent, depending on the category of the client. In addition to Ukrgasbank, Oschadbank, Bank Lviv, "Kredobank". This program is short-term, but I think it's a great mechanism for those entrepreneurs who want to implement their projects and get more financial support in the form of cashback. If you look, it's cashback in general fully covers the costs of the loan, if it is short-term - up to 2-3 years There is an effective program supported by  EBRD also with a grant component, according to which the cashback is 10-15 percent and works for investment projects.

We work under partner programs and with the European Investment Bank, which provides a guarantee mechanism for loans for SMEs,  coverage for the account of their guarantee component can reach 70 percent. It gives be able to set higher limits  for customers using limited collateral that the client has. There are great USAID programs that provide the opportunity increase the availability of financing for customers. In general, USAID time from time implements new programs for business and provides grants directly business, for development. Such grants can amount to, as a rule, no more 50 percent of the project and this is also an opportunity to realize your investment plans I highly recommend monitoring USAID programs for  business

Regarding assistance to those entrepreneurs who were forced to relocate due to the war your business How common are such programs in Ukrainian banks?

Almost all banks provide such support programs in one form or another of Ukraine. Ukrgasbank has the following banking products. We are still at the beginning of the war created a loan for relocation, business relocation and expected from it really in high demand. But, I will tell you frankly, this loan was small demand. At the same time, we have successful business relocation cases. Example, several dental offices that relocated took advantage of this loan from Donetsk and Luhansk regions to the western regions of Ukraine. Usually a loan met the needs for renting and repairing the premises, but we are not there we stop We are considering other cases, improving the program so that it was attractive to entrepreneurial clients and really helped to start a business in a new city. We do not have such that we are not ready to solve some issues in this direction. It depends on how much the business is affected and on how much potential it has for recovery. I also want to say that "Ukrgasbank" - one of the few banks that lends to startups as part of the support program business "5-7-9%". We consider different cases, but they must be balanced and have a basis for its implementation. Of course, a startup needs financial support participation of the entrepreneur, because the loan cannot cover 100 percent of the costs for creating a new business.

What are your personal predictions for the future of small and medium-sized businesses in Ukraine?

My personal opinion is that 2024 will not be easier for business and for us, the banks. As long as the war is going on, every year will be difficult. Maybe there will be some business harder and harder. You know, it can be so cumulative, like a snowball. But I grew up in a family of entrepreneurs. My mom and dad are still here entrepreneurs Mom with every financial or economic crisis in the country always said - we, entrepreneurs, do not need to interfere and we will do everything ourselves. Micro-enterprise, small business, he clings to all the possibilities sees He has a craving for recovery. An entrepreneur is the inner state of a person, which has a tremendous inner drive to action and recovery. you know since the volunteer movement in our country is very powerful, for me entrepreneurs, especially in micro-business, these are the same volunteers. Therefore, I am convinced that the state needs to help entrepreneurs. And the banking community will do support programs, both with the government and with international institutions. We will work with the state, developing proposals to improve the investment climate. Banks will work to provide micro, small and medium business new opportunities, attractive conditions for financing. and i hope that the business will use all these opportunities.

What are the main issues to be worked on by the Committee of the Association of Ukrainians banks on MSME/SME issues?

Literally at the next meeting, we have to crystallize those questions which we consider urgent and most important, which can give the greatest effect for MSMEs/SMEs in Ukraine. We need to focus on key issues and we will process them systematically together with the banking community. For example, we have already talked about one of these issues - the implementation of the mechanism insurance of war risks. We are in dialogue with the Cabinet of Ministers about this of Ukraine. The government already has a vision for its implementation. So we are in the Association Ukrainian banks, we will help make these developments more effective from the point of view of banks. Also, we will work on issues of regulation on foreign economic contracts, financial monitoring. This question painful for business. Because losing even one day is painful  for business and on  approval of some issues by the bank or other specialized services, so that the business can sell its products for export or buy critically needed raw materials, it may take more than one day. Regulation of this process can be reflected in the loss of business opportunities and funds. Ago we at AUB consider this issue urgent. We are export-import oriented state, so we need to work on this direction, make it for business transparent and clear rules are clear. Currently, they are changing, strengthening and here it is necessary, as we think, to balance the regulation and make it transparent and understandable.

How do you see the support of entrepreneurial culture and the development of entrepreneurship skills among SMEs? What curricula and materials can be developed offer SMEs?

Educational activity among entrepreneurs is very important.  Hereby Banks, the Cabinet of Ministers, the National Bank and other state institutions are concerned with the issues. In this process, it is very important to have feedback from the business. Often good ideas are born situationally. Each institution does something different in terms of education activity It would probably be cool to join forces and make something large-scale project or large-scale program. I think that there will be international donors, who will be willing to finance these things. Micro and small businesses sometimes there is a banal lack of some specialized knowledge, information about specifics opening a business in the regions or other issues related to the opening, business development. For example, which direction of business activity will be used by asking, what do you need to do in order to open a certain business? This is a lot of questions. Yes, there are many courses, trainings, lectures and that is good. But we, in the banking community, see that aspiring entrepreneurs do not basic knowledge is enough, they are not confident in their abilities, but they have a lot desire to do business. And the task of the state is to create the conditions for this desire, this motivation did not disappear, but turned into a real business case. The AUB Committee on MSMEs/SMEs will also work in this direction this year education among entrepreneurs. In general, the Association plans to implement several educational programs and the banking community supports these initiatives.