“There isn’t enough money for all”

31 july 2012 года

Elena Shmeleva
Russian Business-Gazeta (RBG)
№ 857 (28), 31.07.2012

About 40% of small and medium-sized enterprises complain of being underfunded

The International Entrepreneurship Support Fund is to start operating in the first quarter of 2013. Board Member, VEB Deputy Chairman Mikhail Kopeikin told RBG about the new institution’s objectives and missions.

- What’s behind the idea of creating the Fund?

- The Fund’s main objective is to provide additional financial resources and boost access to investment financing for above all medium-sized enterprises in the production sector. According to surveys about 40% of small and medium-sized enterprises’ executives complain of being underfunded or unacceptable terms on which commercial banks are ready to extend credits. This is particularly important for the production sector where there is a substantial gap between requirements for investment financing and potential for collateral security of such credits. And in the last years, the state has focused its efforts on developing small-sized enterprises and on large-scale infrastructure projects. Factually, medium-sized enterprises have been left without support.

- Why did such a situation develop?

-We are actively funding small-sized enterprises through the program of providing financial support for small and medium-sized enterprises (SMEs), the amount of support increased now to 185 billon rubles. But there is a regulatory limitation – under the program a maximum size of a credit is to be 150 million rubles. And the amount of VEB’s financing is to be no less than 1 billion rubles, with a project’s total amount to be no less than 2 billion rubles. Therefore, there is a certain gap in our range of instruments in which medium-sized business falls. And now we are making efforts to fill this gap taking into account that medium-sized enterprises are of vital importance for the country’s economic development. They generate demand for innovations, create new markets, have a good credit history but they don’t have enough funds to finance the projects they would like to implement.

- Is the Fund going to give top priority to funding medium-sized enterprises?

- Yes, it is, medium-sized enterprises will be its top priority. The Fund will have a potential for direct financing and target-oriented lending to commercial banks. And direct financing will be provided only to medium-sized production facilities through long-term investment credits, mezzanine financing and maybe participation in capital. We’ll provide support for real sector enterprises. These include manufacturing industry, construction, transport, and communications. The demand for this sort of financing is pretty great. We did a research and it found that SMEs operating in the production sector needed additional investment resources for an amount of 900 billion rubles per year. A significant part of this demand is generated by medium-sized enterprises. Maybe it’s not very much (the total amount of lending to SMEs exceeded 6 trillion rubles last year) but this is a demand in long money that enterprises find it particularly difficult to raise.

- Will the terms of funding offered by the Fund differ from market ones?

- We expect the terms to be market ones. We might accomplish this through engaging foreign development institutions whose cost of raising funds is lower than ours. We believe that this will enable us to extend funds on more favorable terms as compared to commercial banks. Credit periods will depend on an enterprise’s financial standing, profile, projects and a form of funding chosen.

- You are setting up another institution, namely, a Federal Guarantee Fund. What is it designed for?

- Guarantee mechanisms are created to address an issue of credit collateral security in the case that classical liquid security, for example, in the form real property is not sufficient. These mechanisms are actively employed in Europe and the US. For example, financial resources of European guarantee institutions exceed 20 billion euros making it possible to cover credits for an amount of 70 billion euros. In the last years the Economic Development Ministry has been making strenuous efforts to set up regional guarantee funds for SMEs. These funds act as guarantors to banks where borrowers take credits. This measure alone produces a significant effect. Given that guarantee funds’ total capital across Russia is about 30 billion rubles, guarantees and sureties were issued in the amount of 130 billion rubles, almost 1 to 4.5. At the same time, there are certain limitations in the regional guarantee funds because they as a rule are not capable of extending guarantees worth more than 100 million rubles. Therefore, for the most part only small-sized enterprises take advantage of sureties rather than medium-sized enterprises.

We believe that the Federal Guarantee Fund will be an addition to the system of SME support that was created by the Economic Development Ministry designed to fund not only medium-scale projects but also large-scale ones. In parallel with creating such a Fund we might also perform a function of coordinating and methodological center with regard to the system of regional guarantee funds. This will enable us to coordinate instruments of guarantee funds with the SME financial support program and introduce unified operational standards for the guarantee funds and improve the quality of supported projects.

- What’s the amount of the Guarantee Fund’s capital?

- It is to amount to about 10 billion rubles. And this will make it possible to issue sureties and guarantees for at least 70 billion rubles. We believe that the Fund will have commercial partner banks. High priority will be given to extending sureties to medium-sized enterprises that will borrow money from partner banks.

- When will the Fund start operating?

- The Federal Guarantee Fund’s operational scheme is to be prepared till the end of the year. It’s also worthwhile linking activities of the Federal Fund and regional guarantee funds with the SME support program that is being implemented. It’s necessary to engage partner banks and infrastructure support organizations in the system of extending guarantees formed by the guarantee funds.


“We Learn to Take Intellectual Property as Collateral”

10 july 2012 года

An Interview of Vnesheconombank’s Innovations and High Technologies Department Director to the Program “Development Projects” (TV Channel Russia-24)

- Oleg Yurjevich would you specify the role of the state, development institutions including that of Vnesheconombank in encouraging the development of the pharmaceutical sector?

-We have been cooperating with the pharmaceutical sector for a short period of time; this is a new sector for us. It was included in the Bank’s Memorandum on Financial policies only two years ago but nevertheless we have been closely cooperating on a number of projects. In my opinion, VEB’s role is to fund those projects which ordinary commercial banks are not able to fund because of rather long payback periods and the need to introduce new technologies etc. I’d like to stress that we are learning to take intellectual property as collateral, that is, intellectual and innovative content of projects. This is quite a new situation for Russia’s banking sector. And I’d like to stress it once more that to my mind, development institutions’ role is to fund interesting high-technology innovative projects with long payback periods which require low interest rates. Moreover, we participate in preparing technological platforms jointly with the Economic Development Ministry and we are also involved in developing legal framework.

- What projects is Vnesheconombank implementing in innovative biotechnological and pharmaceutical sectors, how much money is committed for them, what’s VEB’s specific approach to funding projects in these sectors?

- I’d like to highlight three main projects we are funding properly now.

The first of them is the Fort Project in the Ryazan region. It provides for constructing Europe’s largest integrated pharmaceutical plant to manufacture a number of medical products including innovative ones and above all flu and hepatitis vaccines developed in Russia. This project is being implemented jointly with State Corporation Rostechnologies under the Memorandum on Cooperation that we signed in 2011. The plant is scheduled to be launched in 2013. The project’s value is more than 4 billion rubles.

We are implementing the second project together with Sphera-Farm Company. This is a project on manufacturing dialysis solutions under GMP standards in the Kaluga region. As distinct from the past practice of mixing all dialysis solutions in pharmacies, with introduction of new requirements and standards, this practice is forbidden now and the demand for these solutions is gigantic: factually almost all medical interventions are associated with the use of infusion solutions.

The third project. We agreed with Biocad Company on constructing the second stage of the pharmaceutical plant to manufacture cancer drugs in the Neudorf special economic zone outside Saint Petersburg.

In general, I estimate the sector’s requirements at tens of billions of rubles. We have to go a long way as the process is not limited to pharmaceutics alone: we need to produce medical equipment (from the simplest to the most sophisticated devices), prosthetic equipment. We have promising projects on producing stents for heart operations etc. I have already mentioned that in implementing such projects a development bank’s role is especially important as it can provide long-term inexpensive credit resources and does not focus on commercial efficiency. Undoubtedly, under our Memorandum on Financial Policies all projects supported by VEB are to be implemented on a break-even basis and we do not seek to earn high interest, our activity is above all aimed at developing the sector.

I’d like to note that VEB’s Development Strategy till the Year 2015 provides for 20% of our loan portfolio to account for investment projects related to innovation and high-technology sectors. We have a high stake in implementing this sort of projects because besides their commercial component they result in introducing Russian technologies, training young specialists. It’s very important for us that we are in a position to provide pretty long-term and inexpensive credit resources to encourage innovation projects. So, we are particularly interested that project initiators submit their applications for such credit resources to us.

- When do you think we’ll be able to reach a pretty sufficient level of import substitution in the Russian pharmaceutical sector and a significant level of innovative medical products development?

- The process is already taking place although not so fast as we would like it to but we can see excellent prospects opening. We shouldn’t forget that investment cycle in pharmaceutics is rather long: a preparation stage of any medical product alone takes at least a year and a funding stage takes at least two-three years. And I think that somewhere in 2016-17 we could reach a sufficient level of import substitution and the country will be able to provide itself with medications.

And our objective is not only to saturate the Russian market but also enable our partners to tap foreign markets to build plants, export technologies to other countries. And these prospects are opening because our developments are absolutely competitive and are rated highly on the market. And we hope that with the assistance of Vnesheconombank’s subsidiary, namely, the Export Insurance Agency of Russia (EXIAR), we’ll be able to implement a whole number of projects. It’s too early to name them but this is a very promising and interesting line of activity for us.

- What results do you expect from implementing the Biocad project, are there any preliminary estimates, to what extent will Biocad medical products be cheaper in comparison with their foreign analogues?

- The main result is that innovative medical products scheduled to be manufactured by Biocad will be a lot cheaper than imported ones. Generally speaking, treatment of serious diseases like cancer is very expensive. Those who experienced this know that one injection might cost several thousand euros. The situation is exacerbated if a country relies entirely on imports: by monopolizing the market sellers is in a position to impose their price terms that are prohibitively high for Russian consumers. Moreover, as budgetary funds allocated for purchasing vitally important medications are limited there arises a need to introduce quotas for them. It goes without saying that such a situation is unacceptable. We’d like all people to have enough medications at prices affordable for them. Therefore, we seek to implement this sort of projects in pharmaceutics. And in examining investment projects we pay particular attention to their financial component. Judging by a financial model that we have developed jointly with Biocad Company with regard to a number of vitally important medications, prices will be affordable for people to treat diseases they unfortunately suffer from. On average, these medicines will be 2-3 times cheaper than foreign ones and their quality will be no worse and often even better than that of their foreign analogues.



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