Access to financing for small and medium enterprises in Ukraine

Numerous credit, grant and non-monetary support instruments are available to Ukrainian businesses. At the same time, difficulties in attracting them significantly limit their positive impact on the Ukrainian economy.

The estimated annual volume of financing programmes available to businesses is UAH 341 bn. Of this amount, bank financing accounts for 72.6% (including 29.6% under the “Affordable Loans 5-7-9” programme, 30.3% for other lending in national currency, and 12.7% for lending in foreign currency). Other available options are loans and grants from international organisations (12.8%), financial leasing (8.0%), government and regional support programmes (4.7%), loans and grants from financial companies, enterprises and organisations (1.9%).

Bank lending remains the undisputed leader in terms of funding. As of the end of April, the loan portfolio granted to residents totalled UAH 1023 bn. Of this amount, UAH 765 bn was accounted for by loans to the corporate sector. This amount includes loans to state-owned (UAH 66 bn) and non-state-owned (UAH 671 bn) corporations, individual entrepreneurs (UAH 15 bn), financial corporations (UAH 12 billion), and non-profit organisations serving households (UAH 0.4 bn). This amount does not include loans to non-residents totalling UAH 58 bn.

Despite 50% of surveyed businesses considering high lending rates to be a factor that could force them to avoid or postpone using bank lending services, in early 2024, only 6% of respondents considered limited credit opportunities to be a limiting factor for increasing production.

In the World Bank’s Firms through the War study, 17% of respondents reported difficulties in accessing finance, particularly due to high interest rates and high risk of default due to uncertainty.

Businesses noted the need for greater awareness of government support programmes among the private sector, with one in four respondents not knowing about their existence.

Key Recommendations
• To state agencies: to create a fully functional mechanism for insuring war risks, publish an NPL reduction strategy, ease restrictions on repayment of existing external debt as part of currency liberalisation, ensure the focus of the ‘Affordable Loans 5-7-9’ programme, adopt bylaws regulating the conditions for the possible seizure of vehicles and equipment for the needs of the Armed Forces, continue the gradual liberalisation of leasing, insurance and other financial services as part of the overall liberalisation of financial markets.
• To commercial banks: to provide personalised support to enterprises in the process of granting loans, adapt internal scoring models, and provide advice on alternative sources of financing.
• To borrowers: to adhere to the principles of integrity and transparency in doing business, provide borrowers with detailed information about the company’s activities, and diversify sources of funding.
• In addition, financial market participants, with the help of government agencies and international partners, should promote credit union loans to small businesses and entrepreneurs, improve application and business plan skills, create a map of opportunities for Ukrainian businesses, increase the organisational capacity of enterprises to raise debt capital and involve business associations in organizing training processes.

This project «Access of small and medium enterprises to financing in Ukraine» is supported by the Ministry of Foreign Affairs of The Netherlands under Dutch development foreign policy, financed by the Private sector development program of the Netherlands Enterprise Agency (RVO.nl).