Банкеръ Weekly



When realization of an idea is postponed it is either improved or forgotten altogether. Sometimes, they remember about it, pick it up, and present it as a new one. Meanwhile, however, its opponents have hardened. This seems to be happening with the guarantee fund for small and medium-sized businesses, which has been projected for years.
The idea for its establishment dates back to April 1, 2002, when Bulgaria joined the long-term programme of the European community for the development of enterprises and entrepreneurship. Later on the same year a memorandum was signed - on August 16 in Sofia and on October 7 in Brussels. The document officially confirmed our country's participation in the programme. A government strategy, called National Strategy for Promotion of Small and Medium-Sized Enterprises (SMEs) in the 2002-2006 Period was drafted and approved, which reads (item 2.2) that a national guarantee fund with respective regional funds should be set up in order to improve SMEs' financing.
In order to fulfil that
commitment of the State to the business
a Consultative Council for the promotion of SMEs with the statute of an advisory body with the minister of economy was set up. It includes representatives of the economic ministries, Dimiter Dimitrov, chairman and executive director of Encouragement Bank (which is 100% owned by the Finance Ministry), the National Association of Municipalities, and NGOs assisting SMEs. Representatives of branch chambers and unions, and experts in economic policy were also included as members of the council.
The first meeting of the Consultative Council was held on March 17, 2005 when Milko Kovachev was minister of economy. The second one was not long ago, on March 9, 2006, and was chaired by the incumbent Minister of Economy Roumen Ovcharov. The final version of the Project Concept for the Establishment and Activity of a Guarantee Fund, Assisting the Operation of SMEs in the Republic of Bulgaria (drafted by the Executive Agency for promotion of SMEs) was to be moved in at that meeting. Unexpectedly, however, Mr. Ovcharov postponed the discussion on that item on the agenda, motivating himself thus: I'm making that proposal not because there is no need of such a fund. On the contrary, it is extremely necessary and we should therefore consider it very carefully and synchronize it with the set of factors, connected with it. Mr. Ovcharov proposed that the concept should be discussed at an extraordinary meeting of the council prior its third regular meeting in June 2006. Mr. Ovcharov's arguments could mean anything, including that no interdepartmental agreement has been reached yet on the management of the future guarantee fund.
That movie was already projected almost two years ago
in the power's cinema. Representatives of the then opposition (BSP and UDF) made a proposal for the establishment of a guarantee fund and moved it for discussion by the 39th National Assembly. In July 2004 it was discussed in the plenary hall and rejected by the NMSII majority with qualifications such as dangerous and threatening the taxpayers' interests. During the plenary debates the then chairman of the parliamentary budget commission and incumbent Chairman of the Audit Office Valeri Dimitrov said from the parliamentary tribune that the State would have to set aside BGN26MN of its budget for the fund, without knowing exactly how the credit risk for each applicant for a state guarantee would be estimated. Thus, the taxpayers' interests would be endangered, he said. He sustains his stance till now. He confirmed to the BANKER weekly that taxpayers' money would be put at risk without taking into consideration all business circumstances. I think there are much more modern schemes for investment than the guarantee one, e.g. through the risk capital schemes, explains Mr. Dimitrov, adding that the establishment of a guarantee fund for SMEs would be the consecutive
manifestation of lack of imagination
when we constantly go back to the same old, discredited schemes which have never and nowhere led to a significant development of business.
The statement of Boryana Pencheva, heading the Management of EU Funds directorate with the Finance Ministry, also caused commotion in the power hall. These days she explained to mass media that work for the establishment of guarantee funds was currently going on, which would help SMEs and municipalities apply for financing from EU funds. She specified the guarantee funds concept was expected to be ready within three months. This shows that in power corridors the left hand does not know what the right hand does.
Deputy Minister of Economy Nina Radeva explained to a reporter of the BANKER weekly that EUR150MN a year was envisioned, to be absorbed under the EU programme for the promotion of business competitiveness. Undoubtedly, that will be a generous opportunity for the emergency of a middle class, whose vocation it would be to stabilize the backbone of Bulgarian economy.
The guarantee fund project concept
will be probably redrafted and supplemented within the next weeks and months. In its present version it stipulates to guarantee up to 50% of the financing of SMEs projects. According to the drafters, that would raise banks' interest towards crediting SMEs. Bulgarian state-run institutions and foreign donors will be majority owners of the fund in the first years of its operation, which will pour capitals into it. That already happened once. In May 2005 Germany's Government extended a free grant of EUR10MN for the establishment of a guarantee fund for micro, small and medium-sized business, which was to begin functioning by end-2005. Meanwhile, Bulgarian rulers changed and the promises to the German donor remained without a result. It is not known how the EUR10MN donation from Germany was utilized.
The drafters of the project concept for the establishment of a guarantee fund for SMEs proposes now that it should be set up with
a capital fo EUR5MN
and attract as co-shareholders Bulgarian commercial banks and insurance companies with well-developed branch networks, as well as branch organizations and NGOs, and individual SMEs. However, the State intends to keep in its hands 51% of the fund's capital.
The guarantees it will be extending for SMEs loans will have up to 5-year maturity and the clients will be paying a single 2.5% fee on the effectively guaranteed amount and an annual 1.5% fee on the amount of the remaining guaranteed loan. The project concept has been based on data from the experience of SMEs guarantee funds in South Korea, Turkey, Poland, Hungary, Portugal, Great Britain. They show that the State's protection is highest in South Korea where the risk coverage, guaranteed by the fund is 100 per cent.
According to Deputy Minister of Economy Nina Radeva, the future fund should be connected mainly with banking, and more specifically, with Encouragement Bank. The Government intends to clarify that concept in future. The idea is to transform the credit institution into an investment bank of the State. According to Ms. Radeva, the guarantee fund for SMEs may be set up only if some selfish departmental interests are overcome. She believes also it is not within the power of a single ministry to set up departmental funds and guarantee SMEs' access to financing. However, Ms. Radeva is optimistic about the establishment of the guarantee fund and believes it will be set up before June 2006 because of our country's commitments to the EU.
It will soon become clear if that will really happen. Let's hope small-size entrepreneurs are not sacrificed in the interdepartmental battle for the European funds. SMEs urgently need fresh money in order to develop their business. Otherwise, Euro scepticism will be soon strengthened.

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