EBRD and EU may hand out $9 million

  • 2000-06-01
  • Valters Medenis
RIGA - "Small is beautiful! Everything needs to and does start out being small," said Viktors Kulbergs, the president of the Latvian Chamber of Commerce and Industry.

Kulbergs comments are directed at the European Bank for Reconstruction and the European Unions pledge to hand out an undisclosed amount of euros to small and medium business development in Latvia. Charlote Ruhe, the EBRD's small and medium business fund official, made the promise during the EBRD meeting held in Riga.

The amount is believed to be in the vicinity of $9 million, said Haralds Burkovskis, spokesman from Unibanka, which will handle the deal and not the Latvian government.

"The credit will be given out on the principle it is only used for the development of small and medium businesses. The agreement has not yet been signed with the EBRD," said Burkovskis. "Unibanka will secure the loans and a specific criteria will need to be met. Even though details have not been fully agreed upon, the loans will be processed as a standard loan."

A standard loan means a satisfactory business plan needs to be presented along with some sort of collateral to Unibanka.

"To give potential small and medium businesses a fair go, the collateral should be disposed of in this circumstance," said Kulbergs. "If there is a good business plan in place, the business venture started should meet the banks' need for collateral. The EBRD's financing of credit, could be just as hard to receive as a usual business loan from any other bank."

Kaspars Paupe, spokesman for the Ministry of Economy, said small and medium businesses make up 50 percent of Latvia's economy.

"The amount of turnover these businesses provide could be even higher if small and medium businesses could find credit easier," said Paupe. "Potential investors find it hard to get credit from a bank with a good business plan and no collateral. Banks do not want to risk financing credit without security and here is where the problem lies."

The Ministry of Economy is discussing with two Latvian banks the possibility of making the access of credit easier for the development of small and medium business. The two banks are the Hipoteku Banka and Zemes Banka.

"The Ministry of Economy's and the banks' funding for the development project will be $2,750,000. The Hipoteku Banka and Zemes Banka will be securing the financing and the goal is to make the access of credit easier for potential small businesses," said Paupe.

Kulbergs said the development of small and medium business is essential. It gives the small operator the chance to achieve and develop into something larger.

"The government needs to be effective to develop small and medium business. Small businesses can not start factories, but can develop new technology, electronic commerce and information technology," said Kulbergs.

Monte Akesson, the president of the Foreign Investors Council, said small and medium businesses will aid the flow of foreign investment in Latvia.

"If small and medium businesses can be developed and the right market be found, this could lead to overseas investors being interested in adding capital to their project," said Akesson.

Kulbergs said attention needs to be directed at business plans and credit for industries of the future.

"Help from the government is needed for up and coming small businesses. The government needs to realize businesses need up to $3,333 from the banks to establish a company and then the capital to start the venture," said Kulbergs. "This all sounds risky for a bank without any collateral from the potential small businessman. Business incubators need to be developed. These businesses can then come to these incubators to have their ideas realized."

Industrial parks are already being established in Latvia. Kulbergs said industrial parks are the best way evaluations can be done of business plans for future businesses. If the evaluation of a business plan meets the industrial parks requirements, then no collateral would be needed to secure the loan requested at the bank. These parks would be the incubators for small business ideas, he said.

"If the government can help set up more industrial parks, future small and medium businesses can approach these parks and ask for guidance in starting up their own venture," said Kulbergs. "There will always be losses of credit for failed ventures. More will be successful than not. The percentage of failed businesses could be in the vicinity of 15 percent-20 percent. If action is taken to build these business incubators, we could see the success rate rise to 90 percent-95 percent."

The rural area will also be able to benefit from the extra credit being distributed by the banks, said Paupe.

"The credit handed out by the EBRD, Hipoteku Banka and Zemes Banka will give rural, small and medium businesses the opportunity to access credit," said Paupe. "It could really boost rural economy and create jobs."

Potential small and medium business ventures will have to wait until Unibanka and the Ministry of Economy release the guidelines of applying for the loans. Paupe is confident the credit will be used effectively to kick start future Latvian entrepreneurs.