EXISTING FINANCIAL INSTRUMENTS

Micro Credit Lines for M/SME Development

A series of micro credit lines (MCL) are currently at disposal for the financing of micro to small and medium-sized enterprises (M/SMEs). Resulting from a detailed survey of the Macedonian financial system, these financial instruments are specifically designed to meet the current needs of Macedonian small business. They were also aimed at assisting Macedonia to set up its first and only National Enterprise Promotion Agency (NEPA), as well as help establish one (i) Micro Credit Fund (MCF) in addition to a (ii) Micro Credit Line (MCL) for SME support and development.

The latter two institutions (MCF and MCL) were assigned to the following tasks:

1) Promote and develop new small businesses in order to increase employment.

2) Provide easier access of SMEs to financial funds in order to foster SMEs development.

3) Support export activities of SMEs.

MCF (Micro Credit Fund) has adopted the following credit policy:

• MCF represents a revolving fund, which is jointly financed by: EU-PHARE, Government of Macedonia and the commercial banks operating in the territory. The revolving principle means that funds transferred to the banks for SME funding through loans/credits, are deposited with each one of the authorized commercial banks. The banks are appointed as fund managers and can re-use the funds at will for the same purposes.

• MCF works through the Commercial Banks (they contribute with 1/3 of each credit/ loan).

• All granted credits/loans are expressed in Macedonian denars (MKD) and the repayment- servicing of the debt is also in local currency. The banks charge a customary (local) interest rate, which is still rather high (18% on the average).

• A split-off of the risk principle. The guarantee scheme (security) provides for the sharing of risk between NEPA and the bank-creditor in a 47% to 53% ratio on the borrowed amount.

Other Micro-lending Institutions

• Opportunity International - A non-governmental and non-profit organization, registered according the Law for Association of Citizens.

Infact, it is a project funded by USAID and Opportunity International from Chicago. The source of capital is raised through private donations managed by USAID. The target groups are individuals like: sole proprietors, entrepreneurs, start-up SMEs, individual farmers, retailers, groups of citizens. Total funds amount to ca. USD 10 million. 1810 applicants have been granted approval by the year of 2000, with an average loan of USD 3000 and an interest rate ranging from 16-22%.

• MEDF (Macedonian Enterprise Development Foundation) – Another non- governmental, non-profit organization, established by the Government of Netherlands with the objective to: stimulate self-employment, development of SMEs, support of farmers, poverty reduction, investment in equipment, for fixed assets or working capital in SMEs. Total funds are USD 4 million, averaging to USD 10.000 per beneficiary and an interest rate as low as 7 to 12% per year.

• CRS (Catholic Relief Services) - Non-governmental humanitarian organization that grants small loans (from USD 3000 to 5000 on the average) for disabled persons, female entrepreneurs, minorities groups and alike.

Banking Sector (also see Appendix 1)

• Balkanska Banka Skopje - Short-term loans with collateral such as bill of exchange and personal checks of the borrower.

• Export-Import Banka - NEPA / PHARE - Credits for SMEs with business plan and collateral.

• Investbanka Skopje - Credits for agribusiness in rural areas. Collateral in transferable assets.

• Komercijalna Banka Start-up credits only with mortgage on real estate.

• Macedonian Bank for Development Promotion - SMEs long-term loans with mortgage as collateral.

• Makedonska Banka - Long-term credits from WB with 2:1 ratio of collateral.

• Ohridska Banka - IBRD, PHARE/NEPA, and ICDF-Taiwan credit lines.

• Radobank - PHARE/NEPA credits for SMEs as above.

• Stopanska Banka – ICDF credits for SMEs.

• Tutunska Banka - SMEs credit lines form the Netherlands, Taiwan and PHARE/ NEPA.

Small Savings & Loan Institutions

There are several domestic Small Savings and Loan Institutions operating in the territory, of which most significant are: Diduko, Fershped, Inter - Falko, Mladinec and Poshtenska providing short-term loans to individual entrepreneurs and /or SMEs by means of mandatory collaterals.

Multilateral Institutions

• DEG: Start-up support for SMEs with collateral.

• EBRD: Long-term loan for private sector development.

• WB: Private sector credit line.

• IFC-SEF: Small enterprise fund.

Investment Funds

The establishment of venture capital investment funds is another suitable means of SME finance.

The catch is that this instrument bridges the gap between the needs of the borrower for fresh capital on the one side and the factor of risk on the other (to which creditors, investors, suppliers and vendors alike are exposed).

The basic assessment criteria applied is the achieving of a high internal rate of return (IRR), as a basic decision-making parameter in the process of evaluation of a prospective investment.

The origins of venture capital are in the early 1950s when many rich, daring businesspersons initiated the establishment of investment funds to cover the risk in funding of small business operations.

Several venture capital funds currently operate in this country as well:

• SEAF (Small Enterprise Assistance Fund) provides venture capital to (emerging) SMEs.

• ICDF - Taiwanese investment fund for SME Development.

Guarantee Agencies

Two international guarantee agencies offer Political Risk Insurance:

1) MIGA (Multi-lateral Investment Guarantee Agency) a WB Group member organization. It focuses on political risk insurance with a portfolio covering several economic sectors: agribusiness, energy, construction, telecom, banking, services, etc.

2) OPIC (Overseas Private Investment Corporation), an independent US governmental agency that provides political risk insurance and loan insurance.

The above agencies do not cater for the SME sector and therefore they will not be addressed to in this elaboration.

Development Agencies & Technical Assistance Programs

Several leading development agencies and programs provide various forms of assistance to the Macedonian economy and society in general:

• USTDA (US Trade and Development Agency) - Technical assistance, studies, briefings for all sectors.

• ARD (Agency for Reconstruction & Development) – Loan managers of Taiwanese fund for SME sector development and support, also managers of a soft credit line from the Government of Netherlands (ICDF) for SME development promotion.

• Ecolinks (Eurasian Partnership for Environmentally Sustainable Economies) – An USAID grant aid program for solving environmental problems (global climatic changes, local environment, cleaner production, water quality management, etc.)

• Macedonian Privatization Agency (Labor Re-deployment Program) - Small business assistance, small business incubators, loan guarantee programs, also managing IDA-WB loans.

• OSI (Open Society Institute) - Agribusiness short-term and long-term loans.

• REC (Regional Environmental Center) for CEE - Technical assistance to NGOs working on environmental issues.

• WOCCU (World Council of Credit Unions)- It operates as a local (in rural areas) savings facility and provides credits to the local communities.

Credit unions are facilities of self-finance by the local communities.

• PRISMA (Partners for Economic Development in the RM) – An USAID- supported program for job creation and economic development.

Business Advisory Services (BAS) in Support of SME Finance The management consulting structure in the RM comprises of four categories of BAS services: (i) domestic consulting firms, (ii) sole practitioners, (iii) representative offices of the of the Big Five international consulting companies and (iv) academic and research institutions. They all cater to a mixed clientele of domestic and foreign companies, including a universe of multilateral organizations and institutions represented in the country, reputable international cooperation agencies and NGOs.

Key players in the domestic management consulting industry are as follows:

• Subsidiaries of the Big Five auditing and consulting firms: PWH-Coopers, Arthur Andersen, Ernst & Young, KPMG and Deloitte & Touche provide a wide range of BAS from auditing to management consulting.

• MCA-2000 (Management Consulting Association) – The first industry association in its respective field of activity pools a distinctive group of some 40-50 consulting firms (with several hundred specialists and staff), covering the following sectors: management consulting, IT, SME promotion and development, marketing, human resource management), technical consulting etc.

• Individual experts specializing in academic work and scientific research recruited from among leading academics with prestigious academic degrees and professional reputation.

• Macedonian Business Resource Center (MBRC). A business advisory entity established in 1995 by Crimson Capital Corp., as a provider of consulting services in CEE and sponsored by USAID.

• Other foreign advisory entities for SME development and promotion include:

(i) Southeast Europe Enterprise Development initiative (SEED), established by the WB Group; (ii) A network of business support centers (ESA) funded by the British Know-How Fund); as well as (iii) the country offices of several international cooperation agencies (USAID, GTZ, DEG, SDC.) representing major donor countries.