To help its seven poorest countries of operation overcome poverty, the European Bank for Reconstruction and Development (EBRD) is ready to take on greater risks as it boosts investment in tandem with an anticipated increase in donor funding, EBRD President Jean Lemierre announced at the bank’s annual general meeting recently.

Lemierre noted that in Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan and Uzbekistan, more than 50% of the population lives below the poverty line. These “early transition countries” (ETCs) are less advanced than the rest of the EBRD region in their transition to market economies. This makes investment difficult. High levels of government debt make it very hard for the countries to borrow new funds for economic and social development. Other obstacles include small markets, borders that are difficult to cross, lack of banking and other financial services, and poor infrastructure.

The bank’s ETC initiative emphasises private sector investment, particularly to improve banking services for micro, small and medium-sized businesses whose growth is typically inhibited by lack of access to credit. The initiative also promotes investment in public services (waterworks, heating, power, transport). Lemierre noted the bank can make such investments without requiring sovereign guarantees. The bank will seek in particular to make investments in the €500,000- €2 million range – a niche where credit is hard to come by today in these countries. We will take more risk on the bank’s books, Lemierre said.

The EBRD is creating a special ETC banking team – with seven bankers in its London headquarters working closely with 50 staff members already based in resident offices – to help implement its action plan for early transition countries. The bank will streamline approval processes under the initiative and, where possible, use local law, rather than international law, as the standard for transactions.

To strengthen the initiative the bank has asked donor countries to raise the amount of grant funding they provide the EBRD for use in these countries. Grants are used to help prepare EBRD projects and ensure their successful implementation. Donor grants also fund consultants to advise governments on necessary legal, regulatory and sectoral reforms that would improve the investment climate.

The additional grants would permit the EBRD, in turn, to increase its own investments in the seven countries to about €150mn each year from the current €90mn. And because every euro the EBRD invests typically attracts two more from other investors, the EBRD’s €150mn annually for the ETCs could catalyse total project financings of as much as €450mn.