On April 6, the Agreement on hedging currency risk between the German-Ukrainian Fund and the Reconstruction Credit Institut (KfW) was signed at the Ministry of Finance with the participation of Deputy Minister of Finance for European Integration Yuriy Butsa, executive director of the German-Ukrainian Fund (GUF) Oleg Strynzha and director of KfW Ukraine Lutz Horn-Haacke.
What is it about?
German-Ukrainian Fund provides loans for small and medium business (SMEs) through partner banks. Fund’s resources for the subsequent granting loans to banks are formed mainly by the long-term loans in euro from the government of Germany granted through KfW. German-Ukrainian Fund understands the need for banks and SMEs is in the hryvnia resources, and wants to provide them. But but in the course of converting of the attracted currency loans in hryvnia the Fund will be exposed to currency risks. The European Union, realizing the importance of stepping up lending to SMEs in Ukraine, has offered to undertake a part of currency risk of the German-Ukrainian Fund, in amount of 5.2 mln. euros, under its EU4Business initiative.
According to the signed agreement, the European Commission is ready to compensate the German-Ukrainian Fund through the KFW to 30% of losses arising from adverse changes in the hryvnia exchange rate against the euro on credit GUF programs amounting to 17 mln. euros. In this Agreement KFW acts as an agent of the European Commission on the implementation mechanism for hedging GUF.
Why is it important?
GUF programs are aimed to support the real-economy sector which is the development and employment motor of the world’s leading economies. They offer special loan terms favorable for micro, small and medium-sized business.
In April 2017 GUF starts lending under the new program. With the loan attracted through KfW from the Government of Germany in the amount of 10 mln. euro GUF will provide long-term resources to banks in hryvnia, which will stimulate SME lending. Such financing is extremely important for business development in Ukraine.
"What is very significant in this project is that we are combining the possibility to attract financing with the possibility to issue the loan in local currency. This will increase the interest from the market to this product. It’s very important next step and we create good basis to other international creditors to use new way to support our real-economy sector through providing resources in Ukrainian currency" - mentioned Deputy Minister Yuriy Butsa.
The German-Ukrainian Fund (GUF) is a non-commercial institution founded in 1996 by the National Bank of Ukraine, the Cabinet of Ministers of Ukraine represented by the Ministry of Finance and by the German Credit Institution for Reconstruction (KfW). The purpose of the GUF is to enhance the competitiveness of Ukrainian micro, small and medium-sized businesses by providing them loans via selected partner banks for the increase of their working capital and investments. The GUF funds are managed by the state institution “Administration Office for International Financial Cooperation Projects” at the Ministry of Finance of Ukraine.