“There isn’t enough money for all”

Elena Shmeleva
Russian Business-Gazeta (RBG)
№ 857 (28), 31.07.2012

About 40% of small and medium-sized enterprises complain of being underfunded

The International Entrepreneurship Support Fund is to start operating in the first quarter of 2013. Board Member, VEB Deputy Chairman Mikhail Kopeikin told RBG about the new institution’s objectives and missions.

- What’s behind the idea of creating the Fund?

- The Fund’s main objective is to provide additional financial resources and boost access to investment financing for above all medium-sized enterprises in the production sector. According to surveys about 40% of small and medium-sized enterprises’ executives complain of being underfunded or unacceptable terms on which commercial banks are ready to extend credits. This is particularly important for the production sector where there is a substantial gap between requirements for investment financing and potential for collateral security of such credits. And in the last years, the state has focused its efforts on developing small-sized enterprises and on large-scale infrastructure projects. Factually, medium-sized enterprises have been left without support.

- Why did such a situation develop?

-We are actively funding small-sized enterprises through the program of providing financial support for small and medium-sized enterprises (SMEs), the amount of support increased now to 185 billon rubles. But there is a regulatory limitation – under the program a maximum size of a credit is to be 150 million rubles. And the amount of VEB’s financing is to be no less than 1 billion rubles, with a project’s total amount to be no less than 2 billion rubles. Therefore, there is a certain gap in our range of instruments in which medium-sized business falls. And now we are making efforts to fill this gap taking into account that medium-sized enterprises are of vital importance for the country’s economic development. They generate demand for innovations, create new markets, have a good credit history but they don’t have enough funds to finance the projects they would like to implement.

- Is the Fund going to give top priority to funding medium-sized enterprises?

- Yes, it is, medium-sized enterprises will be its top priority. The Fund will have a potential for direct financing and target-oriented lending to commercial banks. And direct financing will be provided only to medium-sized production facilities through long-term investment credits, mezzanine financing and maybe participation in capital. We’ll provide support for real sector enterprises. These include manufacturing industry, construction, transport, and communications. The demand for this sort of financing is pretty great. We did a research and it found that SMEs operating in the production sector needed additional investment resources for an amount of 900 billion rubles per year. A significant part of this demand is generated by medium-sized enterprises. Maybe it’s not very much (the total amount of lending to SMEs exceeded 6 trillion rubles last year) but this is a demand in long money that enterprises find it particularly difficult to raise.

- Will the terms of funding offered by the Fund differ from market ones?

- We expect the terms to be market ones. We might accomplish this through engaging foreign development institutions whose cost of raising funds is lower than ours. We believe that this will enable us to extend funds on more favorable terms as compared to commercial banks. Credit periods will depend on an enterprise’s financial standing, profile, projects and a form of funding chosen.

- You are setting up another institution, namely, a Federal Guarantee Fund. What is it designed for?

- Guarantee mechanisms are created to address an issue of credit collateral security in the case that classical liquid security, for example, in the form real property is not sufficient. These mechanisms are actively employed in Europe and the US. For example, financial resources of European guarantee institutions exceed 20 billion euros making it possible to cover credits for an amount of 70 billion euros. In the last years the Economic Development Ministry has been making strenuous efforts to set up regional guarantee funds for SMEs. These funds act as guarantors to banks where borrowers take credits. This measure alone produces a significant effect. Given that guarantee funds’ total capital across Russia is about 30 billion rubles, guarantees and sureties were issued in the amount of 130 billion rubles, almost 1 to 4.5. At the same time, there are certain limitations in the regional guarantee funds because they as a rule are not capable of extending guarantees worth more than 100 million rubles. Therefore, for the most part only small-sized enterprises take advantage of sureties rather than medium-sized enterprises.

We believe that the Federal Guarantee Fund will be an addition to the system of SME support that was created by the Economic Development Ministry designed to fund not only medium-scale projects but also large-scale ones. In parallel with creating such a Fund we might also perform a function of coordinating and methodological center with regard to the system of regional guarantee funds. This will enable us to coordinate instruments of guarantee funds with the SME financial support program and introduce unified operational standards for the guarantee funds and improve the quality of supported projects.

- What’s the amount of the Guarantee Fund’s capital?

- It is to amount to about 10 billion rubles. And this will make it possible to issue sureties and guarantees for at least 70 billion rubles. We believe that the Fund will have commercial partner banks. High priority will be given to extending sureties to medium-sized enterprises that will borrow money from partner banks.

- When will the Fund start operating?

- The Federal Guarantee Fund’s operational scheme is to be prepared till the end of the year. It’s also worthwhile linking activities of the Federal Fund and regional guarantee funds with the SME support program that is being implemented. It’s necessary to engage partner banks and infrastructure support organizations in the system of extending guarantees formed by the guarantee funds.