KfW unable to participate in SME support fund with VEB due to sanctions
YAROSLAVL. Aug 8 (Interfax) - KfW, the German government-owned development bank, will not participate in an international fund for support of small and medium enterprise (SME) with VEB, the head of the Russian state development bank, Vladimir Dmitriev said.
"Unfortunately, our German partners informed us that they cannot make their contribution in the current situation, which means we'll expand our own participation and launch the program," Dmitriev told reporters on Yaroslavl.
The establishment of such a fund was approved by the boards of VEB and KfW in line with decisions made in high-level Russian-German intergovernmental consultations in November 2012. The fund was initially expected to be created by the end of 2012, but then the timetable was pushed back to the end of 2013.
A spokesman for VEB told Interfax in July that VEB and KfW had made all corporate decisions. The German bank confirmed its intention to participate in the fund and was waiting for a political decision from Germany's leadership.
VEB's participation in the fund is being financed by the European Investment Bank (EIB) under an agreement signed in June 2013. The fund is being set up in the jurisdiction of Luxembourg as a specialized investment fund with variable capital.
The development institutions of Russia and Germany were expected to each contribute $150 million to the fund, and in future it was supposed to reach $900 million with contributions from institutional investors such as the EIB, the International Finance Corporation and European Bank for Reconstruction and Development.
The fund will provide support to Russian SME through targeted financing of Russian banks, as well as through direct financing. The emphasis will be on financing medium manufacturing businesses in the range of 150 million rubles to 1 billion rubles, not covered by existing VEB programs.
The escalation of the fighting in Ukraine has led to another round of sanctions against Russia, as a result of which the EBRD and EIB have suspended financing for new projects in Russia.
"But of course, this is all unpleasant. Of course this negatively affects our relations with foreign banks, development banks and international financial organizations. I can honestly say that our partners in the West received the imposition of the sanctions with great regret. There were serious plans for the joint implementation with them of a whole range of projects to support small and medium business, support regional banks, support infrastructure, energy conservation and so on that are a priority for our country's economy," Dmitriev said.
He said the partners' obligations on already launched projects remain in effect, but new projects will have to be postponed.
