“Utopia” for small business

The Year of Microcrediting, proclaimed last year by the UN, will be over in a month. Let’s not forget that the Yanukovych cabinet had announced its support of the project and the adoption of a program for microcrediting development. Since then a new president was elected and the cabinet has changed twice, so it is anyone’s guess who is supposed to carry out that promise.

At the same time the alignment of small business forces has also changed. Markian Datsyshyn, director of the nongovernmental analytical center Institute of Reforms, told The Day that most of the “small fry” have moved closer to large cities, meaning eastward and toward the center of Ukraine, where money and small business traditionally specializing in consumer markets are still to be found. The latter is looking for market possibilities. Also suffering is the south, where money can only be made during the holiday season, but there is not enough of this revenue, since there is not enough money to spread one’s wings during the hot season.

However, it looks as though no one has actually tried to find money on the microcrediting market. At least this was one of the main theses raised at the all-Ukrainian scholarly-practical conference “Problems of Financing and Support for Small Business.” Practically all the attendees said that the government has done little if anything to develop microcrediting, despite all its declarations that small and medium businesses, which are in urgent need of microcredits, constitute the foundation of society.

The banks haven’t shown any special initiative, either. Experts note that the overall negative investment atmosphere, in which property status has not been confirmed even for the largest enterprises, has not encouraged dependable relations with small businesses. Changes in tax, customs, and other laws can in no way guarantee that a business will still be operating the next morning. So it is no surprise that microcredits that were implemented were issued at high interest rates. Moreover, not everyone who wanted to obtain such microloans had the collateral to do so. Antonina Palamarchuk, vice president of the Association of Ukrainian Banks, noted that there have been some positive signs in the banking sphere for the microcrediting target audience. According to Palamarchuk, several years ago the banks were doing business mostly with corporate clients, deeming it better to ignore minor ones. But by Aug. 1 of this year, the banks had issued credits to individual clients, including businessmen, to the tune of 21 billion hryvnias. A bank appeared in Ukraine, which was geared to handle microcrediting transactions, while other banks, spotting the niche, began actively developing it. However, the problem of collateral as risk compensation has remained.

According to Palamarchuk, the banking system would allow small business access to monetary resources if businessmen could somehow prove that they are law-abiding. She believes the problem could be solved by introducing credit histories everywhere, tools that would prove to banks that a client is reliable. While it is possible to gather data about large businesses, it is more complicated to acquire such information about small and medium businesses, especially since part of the Ukrainian economy is in the shadow sector. Palamarchuk predicts that the introduction of credit histories would help increase the volume of microcrediting by 15 percent. In principle, creating a credit history is simpler than wading through a huge amount of paperwork and setting up shop, but the fact remains that none of the three credit history bureaus has actually begun functioning, so there is no help from that quarter.

Another way to help finance small business could be state subsidies. The State Regulatory and Entrepreneurship Committee considers this the correct one, while complaining that these subsidies are not enough. According to Hennadiy Bilous, deputy chairman of the committee, 180 million hryvnias should have been allocated for the development of small business, but the actual budget appropriations were cut by a hundred times. This year, despite the committee’s request for 210 million hryvnias, the sacred number of 1.8 million appeared on the pages of the budget. In Bilous’s opinion, this is absolutely incorrect. He says that regional state administrations are currently dealing with the financing of small business by doling out money from their budgets and the proceeds of privatization. But there is nothing remotely resembling a long-term financing program, even though such a program must be developed for at least a three-year period.

However, not everyone agrees with these views. Datsyshyn told The Day that financial aid to entrepreneurs will yield little. For them it is much more important if they are protected against overregulation by the state and guaranteed the right to take part in tenders and to play the game according to understandable rules. All this, together with improvements to the tax reform, will help entrepreneurs get on their feet rather than wait for handouts from upstairs.

Speaking about clear-cut rules, it wouldn’t hurt microcrediting to have a set of clearly formulated and understandable rules. Serhiy Dryga, head of the Entrepreneurial Support Fund, says that in the absence of clearly formulated rules for funding small businesses, they have to be provided with loans in keeping with regulations not banned by legislation but which must be approved by the justice and finance ministries and other institutions. It is not always possible to obtain all these authorizations and the situation becomes deadlocked.

However, all these problems seem to be remote from politicians’ daily realities. Each new team begins its work reexamining the previous team’s legacy and altering reference points, which has a very negative effect on investments, especially in small businesses. Yet, with the elections approaching, who is paying attention to this?