SME Project

Context

The context of the project is the environment in which local and central governments, private sector and NGOs of Ukraine, and international agencies will be able to operate effectively on the basis of partnership, management performance and facilitation to fight poverty and unemployment using innovative partnership mechanisms and existing investment opportunities on national and international levels.

Problems that the project is addressing:

• Ukraine is currently facing a transition to the market economy, which embraces, as in the other NIS countries, the whole complexity of social and economic problems and obstacles, at national and local levels.
• Insufficient capacity of local governments to manage the investment activity, as well as the limited funding for the Small & Medium Enterprises (SME) sector in Ukraine are some of the major stumbling blocks of economic growth in Ukraine, especially at the local level.
• Inability to provide liquid collateral by most SMEs diminishes their chances of getting funding to finance their investment projects and, consequently, plays somewhat an essential role in the community development process.

What the project is about:

Putting the Public-Private partnership mechanism in place was viewed as a practical tool of the community economic growth and social infrastructure development through business development and employment creation, given that collateral is still a scarce "commodity" in the Ukrainian economy and that the land privatization has not been completed yet.

Project objectives were:

• To strengthen the strategic partnership between small and medium enterprises (SMEs) and municipalities through planning the municipal development based on the development of SMEs that are located within the municipal territorial borders.
• To strengthen the capacity of local and central governmental institutions to facilitate regional development, improve SMEs management skills and transboundary cooperation for sustainable businesses development and to access information through the Internet.

How the project was organised to implement:

The Local Investment Programs (LIP) developed within the project were the new tools for local development through the investment promotion and local business development that had to lead to community income generation, employment creation and social infrastructure development. LIP included a set of individual business investment projects that were aligned with social infrastructure development priorities of the region (oblast) or municipality.

Another specific feature of LIP was that it was backed by local governments through providing collateral in a form of municipal property on the "participatory basis" (from both local governments and local SMEs sides) to make funding of local business investment projects possible. On top of that the mechanism could become more elaborate due to incorporating insurance and reinsurance elements in response to the needs of lender/borrower or investor/local partner.