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Cyprus SMEs get €150 mln package from EIB

13 December, 2013

The European Investment Bank (EIB) has signed an agreement to provide two instruments in support of small and medium-sized companies (SMEs) in Cyprus worth a total EUR 150 mln.

The first is a EUR 50 mln first contract under the Trade Finance Facility to support foreign trade activities of Cypriot SMEs and mid-maps with the EIB offering guarantees to foreign banks providing trade finance. By mitigating the risks involved in trade financing, the facility should contribute to re-ignite trade flows with Cyprus, favouring an export-led recovery promoted in particular by SMEs and mid-caps.
This facility is the EIB’s second guarantee supporting trade finance this year following the implementation of the Greek SMEs trade finance in June and will both alleviate cash collateral constraints otherwise imposed on most SMEs and increase access to international trade instruments, particularly after the imposition of capital controls in March that have brought most businesses and exporters to their knees.
The second EIB facility is a EUR 100 mln first loan to the Republic of Cyprus under the Cyprus Entrepreneurship Scheme. The government will use the finance to establish a fund mechanism under which the state and commercial banks will lend to SMEs on a risk-sharing basis.
The day-to-day management of the scheme, is expected to be entrusted to the European Investment Fund (EIF) – the financing arm of the EIB Group specialising in SME risk-taking products. The EIF has substantial pan-European experience in managing funds at a regional and national level aimed at providing access to finance for SMEs. Moreover, the EIF possesses significant market experience in Cyprus, developed through the implementation in the past of the JEREMIE initiative and other transactions under the Progress microfinance programme.
The agreements were signed in Nicosia by Mihai Tanasescu, EIB Vice-President responsible for Cyprus, with Finance Minister Haris Georgiades, Minister of Finance, while the trade finance agreements were signed by Charis Pouangare, Director General, Bank of Cyprus, Emilios Kyriacou Managing Director, Citi, and Frank Mayer, Managing Director, Commerzbank AG.
“The EIB is a long-term lender, so trade finance products have never featured in our portfolio. As the EU bank, however, we felt that we should provide new tailor-made support products needed by EU Member States,” said Mihai Tanasescu.
“Under the innovative trade finance facility the EIB will play a critical role in mitigating the risk perception of the commercial banks at a time when Cyprus needs trade finance in order to pursue export-led growth for its economic recovery. The entrepreneurship scheme will provide additional support to SMEs in Cyprus, as the deep recession in Cyprus is heavily constraining the liquidity of SME businesses and the availability of medium and long-term funding to sustain their activities. Moreover, the borrowing cost for SMEs is at significantly higher levels than the EU average. The EIB funding tries to address such market weaknesses in a flexible manner.”