Robust corporate governance can make all the difference in helping a small business obtain finance. And it can also help make the most of that investment. In the majority of countries where the EBRD invests, SMEs face significant obstacles to sound corporate governance and business standards. These difficulties prevent many small firms from growing and becoming more dynamic, particularly on a global scale. Indeed, there is a significant need for stronger business skills, including financial literacy and business planning, particularly in regions such as Central Asia, eastern Europe and the Caucasus.
Improving corporate governance is a key priority of the EBRD’s Small Business Initiative. The Bank has a comprehensive toolkit for tackling the challenges that SMEs encounter in this area. It helps them improve their financial transparency, streamline their legal and management structures and improve diversity in the workplace.
Boosting financial literacy and entrepreneurial skills
Sound corporate governance goes hand in hand with strong business skills and financial literacy. In 2016, we helped 67 SMEs get the right business advice in these areas by working with local consultants through our Accounting Improvement Programme. We also launched a complementary Financial Management Enhancement Programme that helps small businesses look at their broader financial management. In addition, in 2016 we provided training for 23 Chief Financial Officers (CFOs) from SMEs across our region through the Joint Vienna Institute. The training was followed by a unique forum in Belgrade for CFOs from leading SMEs in the Western Balkans. The event enabled participants to share best practice and technical expertise.Expand to read more
Corporate governance and the setting of business standards also play an important role in many of the programmes we launched in 2016. These include a programme in Ukraine in partnership with the EU4Business initiative. Its central focus is on improving the competitiveness of SMEs, including by strengthening corporate governance and business standards. As part of the programme, an online portal and helpdesk are being developed to supply industry data and information on best practices. Training will also be available for entrepreneurs and managers on technical regulations and standards with regard to the Deep and Comprehensive Free Trade Area with the European Union.
Promoting role models
In 2016, we launched a programme to provide longer-term growth support for leading SMEs. The Blue Ribbon programme offers a combination of the Bank’s advisory and financing products to a carefully selected group of SMEs.Expand to read more
These firms have potential for vigorous growth and can create demonstration effects for the private sector in their region. Improvements to corporate governance are part of this programme, alongside other outcomes that create value and long-term competitiveness. Pilot projects were rolled out in the Western Balkans, Croatia and Turkey in 2016, with other countries due to participate in 2017.
Integrating structural efficiencies with direct finance
We promote corporate governance enhancements through our direct financing for SMEs. Our technical cooperation projects are designed to provide SMEs with pre- and post-investment support.Expand to read more
They add value to investee companies through intensified monitoring, implementation of plans to create value, and advisory services that address specific areas in each enterprise. As a financier – especially in the case of equity investments – the EBRD is well-placed to promote good practices in corporate governance and sound business conduct. We also foster compliance with applicable industry standards and financial transparency. In this way, we signal to the local private sector that these standards are valuable and lead to better performance and bankability.
Improving efficiency in Bosnian baked goods
Founded in 1995 as a small bakery shop located in the family house of a newly married couple, 20 years later Krajina Klas is a leading producer of bakery and confectionery products in Bosnia and Herzegovina, with around €10 million in turnover and employing 480 people.
We provided a €2 million loan through the Enterprise Expansion Fund (ENEF) to the company to support production capacity increases and new retail store openings.
The EBRD has been supporting the business since 2011, when we provided the company with an industry expert to help create new, innovative products and improve the company’s production and distribution processes, growing market share and profitability. Then, in an evolving market, the company’s management structure and distribution of responsibilities needed to be adjusted. We helped them work with a further international adviser who helped them introduce more comprehensive management structures for their retail stores on a regional level. Krajina Klas also implemented an internal promotion and reward system for employees at individual store level, which is yielding excellent results!
Following the provision of the loan, the Bank has continued to support Krajina in its transition from an owner-managed business to one with professional corporate governance, including:
- preparing the company for its first ever financial audit
- drafting a Value Creation Plan to define the strategic goals and improvement areas of the company as well as an action plan and key responsibilities
- engaging an external shadow CFO to support the implementation of best practices of corporate finance and transfer knowledge to the existing accounting/finance team
- setting up an Advisory Board with an EBRD representative and CFO to share experience with the company.
Through this support, we’re helping keep Krajina Klas on track for a bright future!
Supporting a women-led specialised manufacturer in Turkey
With support from the EU, EBRD and Republic of Turkey, we helped Baroks, a women-led hyperbaric oxygen chambers production company, to improve management effectiveness by developing a three-year strategic plan. Nowadays, the company has solid business targets and the management is committed to success.
Baroks was established in 2012 in Istanbul and is currently managed by its chairwoman, Sema İnci. The company operates in a highly differentiated industry: they produce diving, medical and tunnel hyperbaric oxygen chambers.
As a result of rapid growth and the fact that there are different market conditions and customer profiles for each tender project, Baroks’ management identified a need to develop a structured business plan to better manage the company.
We helped Baroks to work with a local consultant who conducted a diagnostic study of the company and the international market, including the liquidity and profitability of the business, and helped Barok define its vision and mission. With this in place, the consultant helped the company also set short and long-term targets and delivered a three year plan that encapsulated all this.
Baroks also received external financing from one of the partner banks under the Women in Business Programme in Turkey.
Technical cooperation support to SME direct finance
Our work with SMEs has grown and evolved over the years, culminating in more dynamic, more integrated and more innovative interventions under the Small Business Initiative. But getting to this stage would not have been possible without a strong foundation of support in the early days from our donors.
Since the very beginning of the EBRD’s work in the SME arena, Italy has stood out as one of the strongest advocates for SME development. Italian technical assistance of €7 million has underpinned the development of a series of direct financing facilities for SMEs set up by the EBRD in the late 1990s, laying the initial groundwork to help the growth of small and medium-sized businesses in the Western Balkans, the southern and eastern Mediterranean (SEMED) regions, and Turkey.
This technical assistance has been an essential catalyst for the successful implementation of hundreds direct investments where the EBRD provided equity, quasi-equity or debt financing to local SMEs — financing that would have otherwise not been available in the local market. By bridging the gaps between the local and EBRD business standards and by helping to add value to investee companies, this technical cooperation engendered lasting impact for each individual SME but also for the sector as a whole, achieving real and tangible strides in our transition work.