Affordable loans and the small companies that used them

Small and medium companies in Ukraine had, for most of the period, no realistic access to bank credit. Rates were high, collateral requirements were severe and banks preferred lending to the state, which paid well and never defaulted domestically.

What the programme did

Subsidised the interest rate on qualifying loans, so that a borrower paid a low single-digit rate and the state paid the difference to the bank.

Later, added portfolio guarantees: the state covers a share of losses across a portfolio of small loans, so the bank's risk on any individual borrower falls and lending becomes possible without full collateral.

The guarantee is the more important instrument. An interest subsidy makes a loan cheaper; a guarantee makes a loan possible.

Who borrowed and for what

Agriculture and food processing, heavily. Retail and services. Manufacturing equipment. Working capital, which is the least glamorous use and the one that keeps companies alive.

And, after 2022, relocation: moving a plant westward is a capital expenditure with no revenue attached until it is finished.

The honest criticisms

Deadweight: some borrowers would have borrowed anyway and received a subsidy for doing so. Every scheme of this kind has this problem and it is measurable rather than fatal.

Fiscal cost, which is real and which has to be weighed against the employment and output created.

What it demonstrated

That the constraint on small business lending was risk pricing rather than demand. When the risk was shared, banks lent, and the loans mostly performed.

I saw the real effect of this programme in my customers: the small firm that could get credit bought a machine, the one that could not rented or postponed. The criticism of interest subsidy is fair — it distorts the market price; but the alternative is those firms investing nothing at all. The state sharing the risk made visible a class of customer the banks had never looked at.