Financial Sector

The EBRD and its donors have supported the establishment and growth of private financial institutions in the Bank’s region for decades.

We have achieved this through structural reforms and basic training in corporate governance since the dawn of private banking systems in former Soviet countries. Today we continue to increase the capacity of financial institutions, helping them introduce innovative financing products and cater to new customer segments.

  • Financial sector: €31.3 million7.74%
  • Local currency and capital markets: €7.4 million1.83%

€38.7million grant commitments in 201557Total projects in 2015

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Gulmaira Akim is the owner of a Mongolian micro enterprise that produces handcrafts based on ancient designs. Businesses like hers are cornerstones in the development of rural areas as well as expanding the private sector.

But without adequate financial support, micro, small and medium-sized enterprises (MSMEs) would be unable to survive, let alone thrive. On the other hand, Mongolian financial institutions are often not in a position to assume more risk by offering products tailored to these potential clients.

In the EBRD’s early transition countries (ETCs), ETC Fund donors, the Swiss State Secretariat for Economic Affairs (SECO) and the US Treasury support a local currency lending programme through a risk-sharing facility. The programme allows local banks to eliminate currency exchange risk for those MSMEs such as Ms Akim’s, whose revenue streams are in local currency only.

The EBRD and its donors have supported the establishment and growth of private financial institutions in the Bank’s region for the past 25 years.

We have achieved this through structural reforms and basic corporate governance training since the dawn of private banking systems in former Soviet countries. Today we continue to improve the capacity of financial institutions. We also focus on local currency and capital market development and on helping introduce innovative financing products and customer segments.

Over the years, donor-funded assistance has widened the range of projects, which combine policy dialogue and support to operations. Moreover, it has deepened their impact on individual financial institutions and on the wider sector.

Building stable financial sectors

The EBRD and donors help build a reliable financial sector. In Ukraine, for instance, with funding from the European Union (EU), we started work with the National Bank in 2015 to create a strategy for reform and development of the banking system. This will reorganise and modernise the National Bank of Ukraine by 2020, by introducing international standards and practices.

Donors also promote stability by supporting non-banking institutions such as national deposit insurance agencies (DIAs), which boost public confidence in the financial system. The assistance ranges from developing a sound legal framework, to providing managerial support, setting up agencies and developing adequate IT infrastructure.

In 2015, with support from Luxembourg, we initiated a programme in Serbia to create further protection for savers. The programme will assist the national DIA to improve governance, sustainability and risk monitoring. Similar projects in Albania, Croatia, Kosovo and Ukraine were funded by the Ukraine Multi-Donor Account and the Shareholder Special Fund.

Targeting new customers

Helping local financial institutions to reach under-served segments of the economy is another important aim of the Bank. In 2015 donors made available €25 million in grants for credit lines dedicated to micro and small firms and for technical cooperation (TC) support to partner financial institutions.

For example, donors of the Southern and Eastern Mediterranean (SEMED) Multi-Donor Account funded a TC programme in 2015 which is helping partner Cairo Amman Bank (CAB) expand MSME lending in Jordan. The programme transfers international best practices, knowledge and skills. The TCs go hand-in-hand with an EBRD loan to CAB that is equivalent to US$ 20 million for on-lending to small companies.

Local Currency and Capital Markets Development Initiative

The financial crisis exposed two serious shortcomings in the economies of our region: excessive reliance on foreign capital and overuse of foreign exchange borrowing.

Our Local Currency and Local Capital Markets Initiative was launched during 2010 in the wake of the crisis. It aims to establish viable local currency financing and contribute to the development of efficient local capital markets, lessening key vulnerabilities in the countries where we work. The Initiative combines policy dialogue, investments and technical assistance.

In 2015, we intensified our involvement in the exchange sector. We invested in capital market infrastructure, notably in Croatia and Turkey, and used TC grants to support SEE Link, an order routing platform linking the exchanges in the Western Balkans. Elsewhere TC grants supported the Warsaw Stock Exchange and the consolidation of 10 exchanges operating in Ukraine.

In Ukraine, the EBRD’s work also resulted in the draft derivatives law being submitted to the parliament. We continued to engage in derivatives reform in Armenia and Georgia thanks to the support of the EBRD Shareholder Special Fund, and in Morocco with TCs funded by the SEMED Multi-Donor Account.

In addition, the Bank initiated a study, funded by Korea, on creating a market for exchange-traded derivatives in Mongolia, Romania and Ukraine. The aim is to recommend financial derivative instruments suited to each market, identify potential market participants and the likely volume of exchange-traded derivatives, indicating possible ways forward.

Meanwhile, thanks to the EBRD local currency programme backed by donors, Ms Akim’s handcrafts company is among the hundreds of thousands of MSMEs that have obtained a loan through a local partner bank. With 10 million Mongolian tugrik (around US$ 5,000 equivalent) she upgraded her sewing machines. As a result, the quality of her products rose, sales grew, and she secured a Fairtrade shop in Ulaanbaatar as a regular client.


Helping micro businesses with local currency lending

Gulmaira Akim owns one of the thousands of micro businesses in Mongolia that can improve their companies at zero foreign exchange risks with a loan in tugrik, the Mongolian currency.

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Helping women join the workforce

We are working with the Jordanian Microfund for Women to provide finance for women entrepreneurs and encourage more to become active in Jordan's growing economy. This project was funded by the SEMED Multi Donor Account. Donors are: Australia, Finland, France, Germany, Italy, Netherlands, Norway, Sweden, Taipei China and the United Kingdom.

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Supporting deposit insurance agencies

Ever since the crisis started in 2008-09, the EBRD has been on the frontline, seeking ways in which to strengthen financial institutions and the wider economy in our region. A concrete response is our activity to support local deposit insurance agencies.

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