ProCredit and MIGA Team Up to Put Emerging Europe’s Small Businesses on the Path to Green Recovery
At Specijal Product, in Skopje, North Macedonia, 230 workers use solar power to bake cakes and sweets, including Gurabii, an almond shortbread cookie that dates to the Ottoman Empire. In Prizren, Kosovo, the ABI Group uses solar to light two shopping malls.
The two companies share a commitment to renewable energy. They also share a bank: ProCredit, based in Frankfurt, Germany. ProCredit is a development-oriented banking group that provides financial services to small and medium-sized businesses across Eastern Europe and the Balkans and fosters sustainability through its loans.
During the COVID-19 pandemic, ProCredit rallied for its clients, providing them with the liquidity they needed to withstand the pandemic and to keep investing in a greener future. ProCredit’s business model is to be the ‘Hausbank’ for small companies, forming a long-term relationship and providing a suite of services.
The Multilateral Investment Guarantee Agency (MIGA), in turn, is helping ProCredit free up more capital to back loans across the region. Doing business across borders puts firms like ProCredit into a more complex regulatory environment. Like any other financial institution, ProCredit’s subsidiaries are required to keep a certain percentage of customer deposits on reserve as cash with the central banks in the countries where they operate.
Risk Cut to Zero
For a number of countries where Procredit’s subsidiaries are based, those mandatory reserves attract up to 100 percent risk weighting by Germany’s bank regulator. As a result, the reserves consume capital within the ProCredit group which could otherwise be used to make loans to small businesses. MIGA helped ProCredit cut that risk to zero by insuring mandatory reserves against expropriation. That, in turn, freed up capital to back more loans.
MIGA has been helping ProCredit optimize its use of capital since 2010. The most recent collaboration freed up capacity for more than €300 million in loans in Albania, Bosnia and Herzegovina, Georgia, Kosovo, Moldova, Serbia, Ukraine, and North Macedonia.
The new lending capacity comes at a critical time. Like small businesses around the world, ProCredit’s clients in Eastern Europe have struggled to remain profitable amid the lockdowns required to slow the spread of COVID-19. ProCredit aims to keep them in business and help them build back better for a green recovery.
The artisanal bakery Specijal Product didn’t close during the pandemic, but it had to cut production when demand for its bread and pastries declined. Among its larger customers are schools, many of which shut for varying amounts of time to curb the pandemic. A loan from ProCredit, the company’s banking partner for the last three years, helped cover expenses during the worst of the shutdown.
Bakery ovens use lots of power, so Specijal Product decided to invest in a solar system. ProCredit helped calculate the benefits and the cost of financing. Fortunately, one of Specijal Product’s facilities was well situated for solar panels.
“Because the price of electricity increases every month, construction of the photovoltaic plant reflected very positively on our business,” said a Specijal Product spokesman.
ProCredit’s subsidiaries are among the best-managed banks in their countries of operation. During the last three years, all eight banks benefiting from MIGA guarantees have grown their loan portfolios by more than €900 million or 31%, well ahead of real GDP growth.
EVs in Kosovo
Among the biggest beneficiaries of ProCredit’s expanded lending capacity are small companies in Kosovo, a country that is still recovering from years of civil strife. Kosovo is classified as a Conflict-Affected Situation by the World Bank, making it eligible for assistance from the International Development Association (IDA), another World Bank member.
In addition to lighting ABI’s malls in Kosovo with solar, ProCredit this year helped Besa Security, a cash-transport company, purchase a dozen electric vehicles, making Besa the first company in Kosovo to buy EVs for business use. Besa is committed to electrifying its entire fleet in order to cut its carbon footprint and ease reliance on expensive fossil fuels.
In Ukraine, ProCredit is working with KyivESCO to provide financing to clients for the acquisition of clean energy equipment. ESCO is an acronym for “energy service company.” An ESCO provides equipment and services that improve the energy efficiency in buildings, reducing emissions and cutting power costs.
ESCO clients often use money saved on power to service the loans until they are paid off. ProCredit loans have helped KyivESCO modernize kindergartens in Odessa by replacing outdated and failing heating systems. The newly installed systems provided by KyivESCO heat the buildings efficiently and reduce overall energy consumption.
The new MIGA guarantees enhanced ProCredit’s impact in Eastern Europe and the Balkans by helping the bank employ its capital where it’s needed most: for loans to innovative, forward-thinking small businesses that drive positive change—and ensure that almond cookies are abundant in Skopje and that kindergarteners stay warm in Odessa.