Thousands of entrepreneurs in Romania could benefit from a new €88.02mn facility launched by the EBRD, the European Commission, the Romanian government and a syndicate of commercial banks.

The Romania Micro Credit Facility will provide loans – in the local currency, lei, or in euro – to local banks and non-bank micro finance institutions to on-lend to micro and small enterprises (MSEs), including the financing of start-up MSEs. The facility is being created to address the issue that entrepreneurs in Romania, especially in remote and rural areas, have little access to finance other than from sources beyond the financial sector that can charge very high interest rates.

Chikako Kuno, EBRD director for small business, says there are still many banks in Romania which are largely unwilling to lend to MSEs due to the perceived risks associated with the sector, while non-banks are largely limited by a lack of their own funding.

This facility will help overcome these gaps in the market, and should generate thousands of new micro businesses that will help create jobs and support economic growth in Romania, says Kuno.

The new facility will be financed with €40mn from the EBRD, €30mn from the commercial syndication market, €13.6mn from the EU Phare Programme and €4.42mn from the Romanian government. The EU and the Romanian government will provide €2.5mn of technical assistance funds to develop new financing products for MSEs, help improve risk management procedures, and help train staff in providing financing to MSEs.

To encourage partner lending institutions to finance more start-up MSEs (for example, those less than 12 months old) €3mn of the EU finance will also cover up to 50% of losses incurred by partner lending institutions on loans made to start-up micro businesses.

“Competitiveness of the economy depends strongly on the capacity of small businesses,” declares Donato Chiarini, head of delegation of the European Commission in Romania. “They are a key source of jobs, ground for new business ideas and the main driver for entrepreneurship. Therefore, strengthening small and medium-sized enterprises is vital to ensure increased competition. But, getting a company off the ground or expanding it requires money, and finding the right kind of finance is often a major difficulty for SMEs. Through the facility, Phare funds are jointly mobilised with resources from EBRD and from Romanian government to provide loans to SMEs. The Commission makes it easier for SMEs to get loans from banks by providing guarantee funds as well as technical assistance to the partner lending institutions.”

Romanian minister of European integration, Anca Daniela Boagiu, says that the main objective of the microcredit scheme is to provide development finance in Romania through the local financial sector, notably focusing on the needs of start-ups and micro-enterprises.

“The Microcredit Scheme aims to provide financial support to targeted beneficiaries, complementing the resources provided by the local financial sector and/or by development finance institutions (DFIs) active in Romania. The project will act as a promoter for Jeremie – Joint European Resources for Micro to Medium Enterprises – an initiative by which it is intended to improve the supply of risk capital to small and medium-sized enterprises in the EU regions and it is expected to begin in 2007,” Boagiu says.

Opportunity Micro-Credit Romania (OMRO), a dedicated micro-finance institution based in Targu Mures, will be the first to receive funding under the facility. The Lei9.85mn (€2.8mn) loan will enable OMRO to build on its existing portfolio of micro-business clients. Typical loan sizes from all institutions to MSEs will be below €10,000 and will target businesses employing nine people or less.

Csaba Kalman, OMRO chief executive officer, says that OMRO is one of the first micro-finance institutions in Romania, with assets of Lei32.6mn and a portfolio of 2,048 active loans. The funding obtained from the EBRD will contribute significantly at expanding our MSE financing activity and reaching our target of more than 3,000 active loans in 2007.

The EBRD is the largest investor in Romania, having committed over €3.2bn in around 115 projects.

The European Union supports Romania with expertise and financial resources in view of accession preparation, through three specific programmes: Phare, Ispa and Sapard. The beneficiary sectors vary from regional development and SME support, to investments in transport and environmental infrastructure and rural development.

The total annual amount of funds allocated to Romania through the three pre-accession programmes has increased from about €660mn in 2003 to well over €1bn in 2006. The management of these funds is done by the Romanian authorities, under the coordination of the ministry for public finance.