This is the third credit line opened by the EBRD with one of the 10 accession countries. In December 1999, a 10 million euro credit line was opened in Poland, and 4.9 million euros were given to Romania after EBRD signed an agreement with the EU to channel funds to East European countries through the PHARE program in November.
Starting in 1992, EBRD has already granted 6 million euro directly for the development of small and medium enterprises in Latvia; 8 million euros were given to the banking sector, which should have increased the availability of SME finance indirectly.
"In the EU the small and medium enterprises are the backbone for economic development," said Gunter Weiss, one of the first financial and legal counselors for the PHARE program. "What is important in bigger and well-developed economies is even more crucial for the smaller and still developing ones."
The head of macroeconomic department in the Ministry of Economics, Olegs Baranovs, also identified the development of small and medium businesses as one of the highest priorities of the Latvian economic policy. Currently, the share of small companies in the Latvian markets is unacceptably low. While in the European Union SMEs make up 99.8 percent of the total number of firms and employ 66 percent of the workforce, in Latvia small and medium firms provide only 22 percent of the total employment.
According to Baranovs, the situation is improving.
"The economic climate is becoming more favorable, and people themselves have more or less got used to the concept of market economy and started to rely on themselves," he said. Availability of financing remains, however, one of the main barriers to SME development.
The state support of small entrepreneurial start-ups is currently very low, Baranovs admitted. The only financial assistance small enterprises in Latvia can currently hope for are leasing services and issues of loan guarantees from the Latvian Guarantee Agency. Thanks to the undeveloped security market, resources available from investment funds are also very limited.
Small long term loans, often crucial to small business development, are also hard to come by, which is why the EBRD credit line is of great importance.
"The main advantage of EBRD funds is that, with six years maturity, they are long term loans, which are usually not easy to get," explained the Unibanka vice-president Viesturs Neimanis.
The state is trying to address this problem by channeling funds for SMEs through the Latvian Mortgage and Land Bank, which has traditionally been servicing mainly small and medium companies, mostly using state guarantees. According to the project developed by the Cabinet of Ministers in November, 10 million lats ($16.7 million or Euro 17.5 million) will be given to LMLB in the next three years to be distributed as mini-loans and mortgages. Every year 400 to 500 business plans are expected to be financed.
While the state is supporting the future backbone of Latvian economy through the Mortgage Bank, EBRD has chosen Unibanka as "by far the largest lender on the Latvian market with a branch network all across the country," Andre Kuusvek, EBRD representative, said.
Neimanis highlighted that Unibanka also has a high degree of familiarity with the SME sector, due to its extensive network of branches in the countryside.
"SMEs is a sector with a very large potential, and Unibanka knows this sector rather well."
Unibanka will receive technical assistance in the first two years of the program, comprising a small team of consultants on long term lending and a staff training program for handling a large number of small loans efficiently. Unibanka will also receive assistance with marketing.
EBRD will not interfere in the distribution of funds, and no parts of the credit line are earmarked for a specific sector or geographic area.
"It's up to Unibanka now," said Gunter Weiss. According to Unibanka president Andris Berzins, the bank will continue its previous policies in EBRD loan distribution.
"We are working for the whole of Latvia, not a particular area or sector, and will make the funds available to everyone," Berzins said.
The largest part of Unibanka lending has so far been going to the service sector, manufacturers, and small food producers.
A firm can apply for a loan from EBRD credit line in any branch of Unibanka beginning in September, and the loan review procedure will be the same as for other Unibanka loans. The maximum loan size is set at 125,000 lats; the minimum will be around 3000 lats, determined on a case by case basis.
At the beginning the interest rates will not differ from those on other Unibanka loans, but may later go down as the bank's efficiency in handling small loans increases thanks to training.
In the future, EBRD may extend its credit line to another Latvian bank to create a competitive situation on the lending market. No candidate has yet been chosen.