New SME support initiatives announced at the Ukraine Recovery Conference 2024: “Vision: Business Development Fund 2.0” and “SME Resilience Alliance”

During the international Ukraine Recovery Conference (URC2024) that took place in Berlin on June 11-12, 2024, the Ukrainian and the German high-ranking government officials announced and signed several crucial initiatives and documents which form a comprehensive support package for development of the modern and sustainable small and medium enterprises (SME) support infrastructure in Ukraine.

Vision: Business Development Fund 2.0

The joint German-Ukrainian initiative “Vision: BDF 2.0” regarding institutional upgrading of the Business Development Fund (the BDF) aims at transforming the Fund into a full-fledged national development institution for supporting SMEs in Ukraine.

The "Vision: BDF 2.0" initiative foresees three stages of the BDF development:

1. Transforming the Fund into a sustainable, reliable and independent institution for the designing and implementation of international and state support projects ensuring access to finance for SMEs. At this stage the Fund would undergo a comprehensive corporate governance reform foreseeing introduction of the supervisory board including representatives of the Government and a majority of members being independent.

2. The BDF will apply for undergoing the EU pillar assessment allowing it, in the case of success, to directly attract funds from the EU. This will dramatically speed up the designing and launching of programs for the recovery of Ukraine and will turn the BDF into one of the Ukrainian front-runners of EU integration.

3. A strengthened BDF will have the capacities to enter the capital markets and mobilize funds of the private investors to finance programs for the recovery of Ukrainian economy.

To ensure implementation of the “Vision: BDF 2.0” the German Government will support the Ukrainian side in the following:

• At the level of the Ukrainian Government’s supervision of the national development institution: during the URC2024 the Ministers of Finance of Ukraine and Germany have signed a joint Declaration on strengthening cooperation in supporting the business development and defined the next practical steps);
• At the level of functioning of the national development institution: The Federal Ministry for Economic Cooperation and Development (BMZ) via KfW finances the project for implementation of the comprehensive institutional development measures, in relation to which shortly before the URC2024 a consulting company (Deloitte) has been selected and a contract has been signed.

The BDF institutional development goals are to revise the Fund’s mandate, business model, corporate governance, legal and regulatory status, to perfect the Fund’s cooperation with the donors, as well as to improve the infrastructure of the Fund’s operations and integrate Environmental & Social and Gender aspects into its activities. Results of the project will be reflected in the new law that will be considered by Verkhovna Rada, Ukraine’s Parliament, still in 2024.

A core group of international partners, including Germany, the EU, the World Bank, the Japan International Cooperation Agency and the Luxembourg Development Agency, have committed to the goal of transforming the BDF into a full-fledged National Development Institution for SMEs and making it a driving force for Ukraine’s economic recovery.

SME Resilience Alliance for Ukraine

Ukraine and Germany have proposed stepping up international support for Ukrainian SMEs via launching of the Alliance that would be aimed at making Ukraine’s SMEs more resilient in war time, and ready for reconstruction and recovery. The Alliance will mobilize support for three pillars:

1. Reforming Ukrainian SME policies.

2. Enhancing the institutional framework, including transforming the Ukrainian Business Development Fund into a sound and solid Ukrainian development finance institution for economic recovery.

3. Providing financing for SMEs.

All founding members are contributing to the Alliance via financial investments, policy advice or capacity building programs. The overall commitments to the aims of the Alliance sum up to more than 7 billion euros for ongoing and new SME programs. Of this sum, over 4.5 billion euros account for new programs.

Comments from the involved participants of the URC2024:

Ukrainian Minister of Finance Sergii Marchenko said, “Thanks to the long-term and effective support of the Business Development Fund from the Government of Germany and the German Development Bank KfW, it has turned into an effective institution for supporting the financing of small businesses in Ukraine. During the war, the Fund fully confirmed its mandate and purpose of activity, ensuring the launch of 17 new projects to support the financing of SMEs in just 2 years, essentially becoming the main driver of lending to the war economy of Ukraine. The Ministry of Finance of Ukraine supports the new project of the Government of Germany and KfW on institutional development of the Fund within the framework of the “Vision: BDF 2.0” initiative, aimed at transforming the BDF into a full-fledged National Development Institution, which will ensure the attraction of financial aid funds to support the resilience and recovery of Ukraine’s economy. Our initiative “Vision: BDF 2.0” is open to all international financial, donor and government institutions, as we strive to unite around it all our international partners who stand with us and support us for the victory and recovery of Ukraine.”

German Minister for Economic Cooperation and Development (BMZ) Svenja Schulze said, “Ukraine needs a vital economy in order to be able to prevail during the war and to build back better. It is a strong signal that 30 international partners are today launching the SME Resilience Alliance for Ukraine. One of the most effective levers for recovery is concessional financing for small and medium-sized Ukrainian enterprises. In Germany, our promotional bank KfW was invaluable in paving the way for Germany’s ‘economic miracle’ in the 1950s and 1960s. Our experience with KfW is something we can share with Ukraine in its recovery process through the SME Resilience Alliance.”

First Vice-Prime Minister and Ukrainian Minister of Economy Yuliia Svyrydenko said, “Small and medium-sized businesses are a critical part of Ukraine’s economic resilience. They also play a key role in the country’s recovery. However, medium-sized enterprises were particularly hard hit by the invasion. Therefore, I am sincerely grateful to our partners who have joined forces to support the implementation of the SME strategy 2027 and the reform process. This includes providing technical advice on regulatory frameworks, policies, and government support programs for SMEs, as well as technical assistance to enhance their skills and knowledge, especially in accessing international markets in preparation for the EU accession process. As well as supporting the strong and sustainable development of existing institutions and providing Ukrainian financial institutions with financing to support SMEs. It is a crucial contribution to Ukraine’s future and our resilience today.”

Member of KfW Executive Board Christiane Laibach said, “Various aspects have contributed to what KfW is today. I believe they can be important for BDF’s transformation into the national development institution supporting Ukraine’s economic recovery now and in the future. Those aspects are: a solid legal framework, financial self-sufficiency, proper institutional set-up, effective mechanism for obtaining feedback from the target groups, subsidiarity to the market mechanisms, sustainability. I am convinced that the BDF – working independently, being able to grow and expand its commitments over time and focusing on its target groups needs without crowding out private sector engagement, and in an effective manner setting impulses on the market – can make an important contribution to the recovery and reconstruction of Ukraine. The transformation of BDF has already begun and I am pleased that we as KfW and the German Government are part of this important process.”

Deputy Minister of Finance Olha Zykova said, “We are grateful to the Government of Germany and KfW for supporting the efforts of the Ministry of Finance in furthering BDF institutional development measures. We are actively working to transform the Fund into a more sustainable, reliable and independent institution. This is a necessary step to achieve decent results in developing business in Ukraine, as well as the recovery and resilience of the Ukrainian economy.”

Chairman of Management Board of the BDF Andrii Hapon said, “As example of the new institutional model for the BDF we have selected the model of the German Development Bank KfW. BDF matches this model ideally since at the time of the Fund’s creation in 1999 the BDF’s model was developed and laid as the BDF’s foundation jointly with KfW, and as such the BDF inherently bears the core ideology and features of the KfW model.”