NGO-led Microenterprise Finance Activity Design

Credit support to small enterprises in a transition economy
Download 59 pages

This paper traces the development and growth of small and medium enterprises (SMEs) in Ukraine, and describes the current microcredit model servicing the needs of SMEs in the country. The model has the following objectives:

  • Developing a design for a nontraditional microenterprise finance activity to be led by a non-governmental organization (NGO);
  • Proposing alternative institutional and funding options;
  • Analyzing lessons learned from similar programs in other transition economies;
  • Presenting a scope of work for the implementing organization that will provide technical assistance for improving credit supply to SMEs in Ukraine.

Underlining the fact that privatization and restructuring in the Ukraine has forced its citizens to quickly adjust to a free-market economy, the paper enumerates the following as supporting argument for a separate institution for strengthening credit supply to SMEs:

  • Lack of a supportive commercial banking climate for the growth of SMEs;
  • Need for a sound microenterprise finance program on a large scale;
  • High interest rates (18 to 100 percent).

Suggesting criteria for selecting sites for a microcredit pilot, the paper recommends:

  • Establishing institutional structures such as credit unions serviced by a national institution for credit;
  • Providing credit on the basis of credibility instead of collaterals;
  • Charging interest rates which ensure commercial viability of the credit program and the SMEs.

The paper concludes by listing the possible loan capital sources that can be accessed for the program and by drawing lessons for other transition economies.

About this Publication

By Harper, B., Siok, J. & Szczucki, J.