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  1. 1. 31 July 2000 FINAL REPORT Practical Implementation of International Experience in Financing SMEs in Bulgaria (1999 - 2000) I. Venture Capital Fund I. WORKSHOPS AND PUBLIC EVENTS 1. “The Experience of the Venture Capital Funds Operating in Bulgaria” (workshop, July 30, 1999) The goal of this workshop was to gather representatives of foreign venture capital funds operating in Bulgaria with the Head of the State Agency for SMEs and independent experts to exchange expertise on their activities in Bulgaria. a. Agenda The workshop was aimed at discussing: • current legal, administrative and tax hampers for creating venture capital funds in Bulgaria; • entrepreneurial education and managerial vision by Bulgarian companies; • challenges to venture capital funds in Bulgaria. b. Participants: Ivo Evgeniev, Alexander Gerov, Julieta Hubenova, Senior Analyst, Senior Analyst, Director General, ECM-Bulgarian Post- ECM- Bulgarian Post- Caresbac -Bulgaria (an Privatization Fund Privatization Fund affiliate of the Small Enterprise Assistance Funds (SEAF) - USA)
  2. 2. Tzvetan Lazhanski, Viktor Manev, Nikolay Nedkov, Investment Manager, Managing Partner, Director, Bulgarian American MMConsult - Bulgaria Oresa Ventures S.A. Enterprise Fund Pavlin Petrinski, Irena Petrunova, Mirolub Vutov, Director, Executive Director, Managing Director, Complete Business Agency for Small Global Finance (a fund Solutions Ltd. created with the participation and Medium-sized of the International Finance Enterprises Corporation) c. Proceedings and main conclusions: The discussions envisaged: • the burdens of the legal, administrative and tax framework for venture capital funds to be created and operate in Bulgaria: • changes in this environment have been made very frequently; • limited law enforcement; • high taxes and the lack of tax incentives for venture capital and equity financing; • licensing regime for several occasions have been introduced; • restrictive lending policy followed by banks; • underdeveloped capital market. • insufficient entrepreneurship culture of managers: • low knowledge of alternative financing sources by entrepreneurs; • lack of knowledge in corporate finance; • lack of marketing strategies; • lack of managerial vision for developing businesses. • opportunities for venture capital funds to operate in Bulgaria: • in comparative terms to other CEE countries the amount of venture capital investments in Bulgaria a very small; • the better macroeconomic conditions since the introduction of the currency board are encouraging foreign venture capital funds investors to consider Bulgaria an appropriate option. 2. “Concept on Creating a Venture Capital Fund” (workshop, October 8, 1999) a. Agenda
  3. 3. The workshop was aimed at discussing: • Reasons for creating a Venture Capital Fund; • Goals; • Basic investment criteria; • Profile; • Legal options; • Registration; • Management; • Sources of Information; • Strategies; • Exit options; • Expected benefits. b. Participants: Boris Landjev, Tzvetan Lazhanski, Vladimir Pavlov, Research Director, Investment Manager, President, Advisory Board, EPI Bulgarian American Entrepreneurship Development Enterprise Fund Foundation Plamen Petkov, Ivanka Petkova, Pavlin Petrinski Senior Analyst, Executive Director, Director, ECM-BPPF EPI Complete Business Solutions Ltd. Russlan Stefanov, Yavor Trifonov, Mirolub Vutov, Research Fellow, EPI Technical University Managing Director, Global Finance c. Proceedings and main conclusions: The VCF is to be created as a joint stock company according to the Bulgarian law. The fund will operate on a commercial basis. The main issues are: • to select a manager with an appropriate track record; • the Agency for SMEs to sign a contract with the fund to provide it with information on potential start-ups. 3. “Establishment of Venture Capital Fund in Bulgaria” (roundtable, November 24, 1999)
  4. 4. a. Agenda: The agenda of the roundtable envisaged discussions on the following items: • venture capital as a source of financing SMEs in Bulgaria; • investment portfolio of venture capital fund; • design and fund raising of the fund; • strategies of the international finance organizations (EBRD, IFC, USAID) referring venture capital funds. b. Participants: Mario Anastasov, Julieta Hubenova, Vladimir Kalinov, Executive Director, Chief Officer of Caresbac - Bulgaria Risk Manager, Department, DSK Bank Raiffeisenbank - Bulgaria Ina Kileva, Boris Landjev, Elitsa Markova, Chief Officer of Research Director, EPI Research Fellow, EPI Department, Bulgarian Association of Commercial Banks Boris Mladenov, Irena Mladenova, Jivka Nikolova, Research Fellow, EPI Chief Officer of Chairman of the Board of Department, Bulgarian Directors, BARDA – Vidin Agency for Small and Medium-sized Enterprises Ivanka Petkova, Pavlin Petrinski, Ventseslav Petrov, Executive Director, Executive Director, EPI Director, Complete Promotional Bank Business Solutions Ltd. Jean-Marc Petterschmitt, Tsvetan Simeonov, Javor Trifonov, Director, Bulgarian Director for Bulgaria, Industrial Association WilliBetz - Bulgaria EBRD Miroliub Voutov, Managing Director, Global Finance c. Proceedings and main conclusions: • venture capital as a source of financing SMEs in Bulgaria; presentation by Ms. Julieta Hubenova (Caresbac-Bulgaria), followed by discussion. Main ideas:
  5. 5. • Caresbac-Bulgaria’s experience shows that Bulgarian entrepreneurs usually do not have clear expectation towards venture capital financing; • already 40% of the Caresbac-Bulgaria’s investment portfolio are Bulgarian start-ups; • Caresbac-Bulgaria’s experience shows that Bulgarian enterprises often do not have clear vision of venture capital financing and they are rarely willing to give up ownership and managerial rights to the venture capital investor. • investment portfolio of venture capital fund; presentation by Mr. Pavlin Petrinski (Complete Business Solutions Ltd.), followed by discussion. Main ideas: • there are enough prospective start-ups that could back up the incorporation of a new venture capital fund. (Usually the good project proposals need USD 100 000 up to 1 000 000); • investors should keep in mind that as for start-ups, the venture capital fund finances the development of the business idea. Often the good business idea does not become a prosperous business activity just because the creator of the idea rarely has entrepreneurship skills to turn it into a marketable product; • usually Bulgarian entrepreneurs are not well acquainted with the principles and requirements of the venture capital funds and thus they cannot fully benefit from this means of financing. Participants agreed upon the necessity of publishing a guidebook on venture capital financing to be of help to Bulgarian entrepreneurs. • design and fund raising of the fund; presentation by Mr. Miroliub Voutov (Global Finance), followed by discussion. Main ideas: • a representative and trust-worthy list of potential investees would draw the attention of investors in the new venture capital fund. The Bulgarian Agency for SMEs’ database would be of great help in the process of preparing this list; • the main characteristics, objectives and strategies of the fund should be stated as clearly as possible in the Placement Memorandum. • strategies of the international finance organizations (EBRD, IFC, USAID) referring venture capital funds; presentation by Mr. J.M.Petterschmitt (Head of EBRD - Bulgaria), followed by discussion. Main ideas: • venture capital financing is very selective, and usually no more than 10 out of 500 proposed projects would get financing; • Bulgarian enterprises lack professional managers more that financial resources; • EBRD’ strategy for Bulgaria is aimed at further development of micro-lending schemes before engaging in venture capital investments. The participants discussed the final version of a Summary Proposal for Incorporation of SMEs’ Venture Capital Fund to reach an agreement. This summary proposal was presented to interested Bulgarian and foreign investors. 4. “The Role of Commercial Banks in Providing Effective Entrepreneurship Financing in Bulgaria” (public discussion, February 24, 2000) a. Agenda: EPI, in cooperation with the FAEL Foundation and the Agency for Small and Medium-sized Enterprises organized a discussion aimed at discussing the following major issues:
  6. 6. • borrowing cost bearability; • information asymmetry and risk management by commercial banks; • disclosure of information by borrowers; • banks’ willingness to invest in venture capital funds. The meeting was opened by Mr. Petar Zhotev, Deputy Prime Minister and Minister of the Economy of Bulgaria. b. Participants: Russlan Abadjiev, Todor Alexandrov, Kalina Angelova, Director, University of Delaware/ “FLAG” Credit Division, Credit Inspector, “Unionbank” AD “Bulbank” AD Mitko Berov, Dr. Nikola Chrisrovitch Bojidar Danev, FLAG Chairman, Bulgarian Industrial Association Werner Fick, Ivo Gadev, Blagovest Georgiev, Director, Foundation for Deputy General Director, Credit Division, Entrepreneurship BNP-Dresdnerbank “Unionbank” AD Development (Bulgaria) AD Nikolay Gerassimov, Lillia Grigorova, Levon Hampartsumian, Director, Firm Level Director, Ernst&Young Assistance Group (FLAG) Senior Expert, Ministry of AFA Economy Thomas Higgins, Ventseslava Jantchovska, Emilia Kalakartcheva, Executive Director, Manager, Credit Manager and Partner, Bulgarian-American Commission BUCO, Bulecoproekt Credit Bank Embassy of Switzerlad Rossen Kirilov, Scott Kleinberg, Kalin Klissarov, Expert, “Finsys” Deputy Chief ERGO, Director, Corporate USAID Finance Dept., Demirbank Bulgaria AD Kamen Kolev, Vanio Konsulov, Petko Krastev, Executive Director, Director, Bulgarian Industrial Capital Director of Regional Industrial Association Association in Bulgaria Branch, DSK Bank Tsvetan Lazarov, Eliza Markova, Michail Michajlov,
  7. 7. Investment Manager, Head of Department, National Bank of Greece International Commercial Research Fellow, Bank (Bulgaria) AD Economic Policy Institute Boriana Naletova, Dimitar Nenkov, Silvia Nikolova, Executive Director, Swiss Executive Director, NDEF - Bulgarian Foundation Head of Credit Department, “FAEL” Promotional Bank Vladimir Pavlov, Ivanka Petkova, Ventsislav Petrov, Chairman of Coordination Executive Director, Board, Foundation for Executive Director, Promotional Bank Entrepreneurship Economic Policy Institute Development Irena Petrunova, Velisar Schirov, Kiril Stantchev, Executive Director, ASME Senior Broker, Newton Expert, United Bulgarian Finance Bank (UBB) AD Russlan Stefanov, Alexander Stojtchev, Steven Strauss, Research Fellow, Credit Support, Swiss - Economic Policy Institute Bulgarian Foundation Executive Director, “FAEL” International Commercial Bank (Bulgaria) AD; Chairman of Bank Committee, Bulgarian International Business Association Stamen Tassev, Dinko Tcherganliev, Georgi Tchernev, Expert, Promotional Bank Executive Director, Vice-Chairman, Bulgarian Newton Finance BG Chamber of Commerce Rossen Tchochanov, Marin Todorov, Bisser Tsenkov, Expert, Agency for Small and Medium Enterprises Manager and Partner, Chairman, Regional (ASME) Bulecoproekt Chamber of Commerce Ventsislav Vassilev, Pavel Velev, Petar Zhotev, Director, FLAG/IESC Head of Program, Catholic Deputy Prime Minister and Relief Services Minister of Economy (CRS)/Bulgaria
  8. 8. c. Proceedings and main conclusions: Is the price of credit acceptable - speakers and main points: Bojidar Danev, Chairman, Bulgarian Industrial Association: • the price of credit is absolutely unacceptable for the business; • the bank system is overliquid and has a higher than normal capital adequacy ratio - i.e. there should be an oversupply of credit resources. However, the market for credit does not function. Banks possess huge short term credit resources, which they should find a way to transform into long term credit (this is possible, as many of the deposits, although marked short-term stay in the bank for as long as 2-3 years). The bank system structure is distorted. There are not enough experienced credit inspectors; • the current way of forming the base interest rate is highly distorted and its value does not reflect the real economic situation in the country; • the underdeveloped capital market in Bulgaria further “blocks” the functioning of the banking system; • the legislative framework does not facilitate the role of banks as intermediaries between savers and investors (e.g. The Banks Act, The Value Added Tax Act, The Corporate Income Tax Act); • the Bulgarian central bank (BNB) as a regulator of the banking system also does not facilitate banks in their credit activities. BNB should bring its regulation acts in line with international accounting standards. The system of intrabank deposit provision should be more flexible; • most of the Bulgarian enterprises use reinvesting for financing their business undertakings. Bulgarian businessmen have insufficient investment culture. Irena Petrunova, Executive Director, ASME:: • credit supply is very low and this makes the price of credit rather high. That is why the entrepreneur who takes credit sees himself forced to lead the so called “hidden accounting”(one set of accounting books for official cases and one set reflecting the real situation in the enterprise). Competition among Bulgarian banks as well as the presence on the Bulgarian market of many international banks will lower the price of credit in the future; • banks are not the sole “guilty” for the high price of credit - they are independent economic entities, which try to survive in the hostile Bulgarian economic environment; • it is important that we develop a system to guarantee at least partly the credit risk of businesses; • banks have to change their attitude towards their clients - many banks lack not only good credit officers but also client friendly employees; • the role of the state in the process of crediting is to show to businessmen that once they come out of the gray economy they will have access to cheaper long term credit. Vanio Konsulov, Executive Director, Industrial Capital Association in Bulgaria::
  9. 9. • it is obvious that the price of credit is unacceptable. But efforts for solving the problems banks-real sector of the economy should come from both sides interested. The establishment of strong relations between banks and business will lead to mutual trust and will lower the risk and the price of credit; • at present the banking system offers only short term credit. Banks’ cost are very high and push the price of credit up. However, banks should realize business cannot absorb these high costs; • one can see a positive tendency towards competition between Bulgarian and foreign banks for trustworthy clients in the country. “Good” clients mean lower risk and should lower the price of credit. Unfortunately, banks charge high interest rates even for “good” clients; • the legal frame for the banking system is not appropriate - it is too restrictive, as opposed to too liberal in the past. There are however many problems internal to the bank system that do not require ideal legislative framework to be solved; • banks should discover good, trustworthy clients. They should analyze the real sector and should be able to “see through” the official books of business. Information Asymmetry and Credit Risk Management in Commercial Banks- speakers and main points: Werner Fick, Deputy-General Director, BNP-Dresdnerbank (Bulgaria) AD: • our bank imports know-how to Bulgaria. We pay taxes. We are an investor. We offer stability and motivation to our employees. We are market makers in currency trading. We extend exclusively short-term credits, i.e. we support mainly international trade deals; • as there are at least for the time being no long-term deposits in local currency on the Bulgarian market, we are forced to extend credits in local currency through maturity transformation; • usually for examining a firm’s credibility to receive a credit we request its financial papers for the last 18 months. We base our decisions also on analyses of production palette and market structure; • many businesses which apply for credit use accounting standards foreign to the international standards. Most of the payments in the economy are still in cash. Steven Strauss, Executive Director, International Commercial Bank (Bulgaria) AD: • banks realize gains from future, not past product sales by businesses. That is why banks insist on a comprehensive business plan, which shows the future market possibilities of a product. It is important that the entrepreneur displays motivation and professionalism; • in recent years we saw the appearance of a number of professional credit officers, who gained good experience in the system; • entrepreneurs must realize that information disclosure can be only of advantage to them. The definition of the negative, in line with the positive perspectives to the business helps the development of mutual trust between the banker and his client; • credit takers must be able to predict financial flows; • the White paper of the Bulgarian International Business Association can be of great help to both sides - bankers and entrepreneurs. It gives information, outlines the problems and prescribes solutions for improvement of the investment environment.
  10. 10. Michail Michailov, Investment Manager, National Bank of Greece:: • the process of credit giving consists of two stages: decision for granting of the loan and successive implementation of the credit scheme. The decision for the granting of a loan is taken primarily on the basis of information supplied by the loantaker; • an important point in the decision making is experience, both of the credit officer and the entrepreneur. Are the financial institutions interested in forming a venture capital fund – speakers and main points: Thomas Higgins, Executive Director, Bulgarian-American Credit Bank:: • theoretically, the major advantages of risk investments are: higher than average return expectations and better understanding between the investor and the investee; • banks, active in Bulgaria, face several difficulties to participate in a venture capital fund. First, there is a maturity mismatch between assets and liabilities - most of banks’ deposits are short term, while venture capital investments are usually long-term investments. In the absence of well functioning capital market in Bulgaria banks cannot afford to take the risk of such long-term investments; • risk investments do not require collateral. Thus they are much riskier than credit financing and specific human capital qualities are required for their management; • not all “good” companies are appropriate for venture capital financing. The fact that there are a number of well performing companies does not mean that they will seek venture capital firms to finance their activities. Kalin Klisarov, Head of Corporate Finances Department, Demirbank (Bulgaria): • in global perspective there is a tendency for banks to invest in risk capital. However, comprehensive statistical data shows that only a very small part of risk investments are for start-ups; • entrepreneurs must realize that venture capitalist always face opportunity costs of their investments. They have to be well aware of the principle work mechanisms of venture capital funds and investment banks, so as not to have false expectations of their services. Information disclosure: Ventseslava Iantchovska, Manager, Credit Commission BUCO, Embassy of Switzerland: The speaker presented the results from the achievements of a working group, financed by the Swiss-Bulgarian Foundation FAEL. The working group consisted of representatives of the Economic Policy Institute, FAEL Foundation, Bulgarian bank experts and external experts. The working group produced a model business plan, which shows to entrepreneurs the main requirements of Bulgarian banks for credit extension. The plan was presented at the meeting and put to discussion. Bank representatives expressed their approval of the practical value of the business plan. Some said they would readily use it in their credit departments. II. PRODUCTS
  11. 11. Within project activities on venture capital EPI has published the following materials: a. brochures: 1. Occasional Paper, vol.1, N 2: Landjev, B., “Non-banking Sources of Financing for Small and Medium- sized Enterprises”, Economic Policy Institute, Sofia, 1999 (issue in Bulgarian and English) 2. Occasional Paper, vol.1, N 3: Genchev, N., “Popular Illusions of Small Investors”, Economic Policy Institute, Sofia, 1999 (issue in Bulgarian) 3. Occasional Paper, vol.2, N 4: Mladenova I., “Venture Capital Financing (a comparative study of US, European and Bulgarian experience)”, Economic Policy Institute, Sofia, First Quarter 2000 (issue in English) 4. Venture Capital (guidebook), Economic Policy Institute, Sofia, 2000 (issue in Bulgarian) 5. Potential for Venture Capital Financing in Bulgaria, Economic Policy Institute Sofia, 2000 (issue in Bulgarian and English) b. mass-media publications: • Mladenova I., Venture Capital: Challenges to Bulgarian Economy, Money, Investments and Markets monthly journal, 6/1999, p.39-45 • Trifonov, J., The New Market Segment of the Frankfurt Stock Exchange, Money, Investments and Markets monthly journal, 6/1999, p.50-54 c. Concept Paper for Creating a Venture Capital Fund The Concept paper has been published in the “Potential for Venture Capital Financing in Bulgaria” brochure. It has also been distributed to interested foreign and domestic investors and partners. II. Micro-credits for small- and medium-sized businesses I. WORKSHOPS AND PUBLIC EVENTS 1. “Implementation of Foreign Experience in Micro-crediting SMEs in Bulgaria” (workshop, September 10, 1999) a. Agenda: The workshop was aimed at discussing: • micro-credit schemes applied by foreign agencies;
  12. 12. • effects from micro-crediting; • economic and legal environment for implementing the most appropriate credit schemes in Bulgaria. a. Participants: Biser Bachvarov, Vlatko Danilov, P.h.D. Tsvetan Davidkov, Executive director, Head of Financial Department, Faculty of Economics, “Nachala” Foundation National Enterprise Promotion St. Kliment Ohridski Sofia Agency (Scopje) University Kiril Grigorov, Andrei Ivanov, Hanko von Knobelsdorf, Executive Director, Institute for Market Economics Head of the Co-ordination Bureau for Economic Promotion Bank Consultations, German Embassy Marija Manoltcheva, Boriana Naletova, Vladimir Pavlov, President, Advisory Board, Financial Associate, Executive Director, Foundation for Entrepreneurship National Enterprise FAEL Foundation Development Promotion Agency (Scopje) Ivanka Petkova, Irena Petrunova, Maria Radeva, Executive Director, Executive director, “Regional initiative” Found, Ministry of Labor EPI Agency for SME and Social Policy Chavdar Selveliev, Penka Spasova, Alexander Stojchev, Bulgarian Partnership Consultant, Bulgarian- Association Consultant, Regional Center German Educational Center for Economic Contractors Support Dinko Tcherganliev, Galia Tsvetkova, Vencislava Yanchovska, Credit officer, Expert, Bulgarian Industrial FAEL Foundation Association Promotion Bank c. Proceedings and main conclusions:
  13. 13. • According to the Law on SMEs which is in force since September 1999 no tax incentives are foreseen. The SMEs consider the Promotion Bank a reliable source for funding of their activities; • A proposal has been made on NGOs (like the EPI) to play the role of reselecting agency (working together with commercial banks experts) of applications for credits by SMEs ; • The Agency for SMEs proposed the banks to give quick responds to credit applications by SMEs; • The Agency proposed a working group to be created to design a business plan matrix and content to help both the Promotion Bank and the entrepreneurs; • A gathering of EPI Workshop’s participants with the banking community has been proposed as well; • The Agency for SMEs proposed supporting materials for SMEs to be published and disseminated; • The representatives of the National Enterprise Promotion Agency (Scopje) shared the experience in engaging Western banks’ experts to help developing micro-credit schemes; 2. Working Group on Preparing a Business Plan Matrix (a joint initiative of EPI and the Swiss-Bulgarian Foundation (FAEL) for Promoting SMEs in the Central Balkan Mountains) The Economic Policy Institute initiated the establishment of a working group with the participation of: 1. Vencislava Yanchovska, Manager, Credit Commission, Embassy of Switzerland 2. Cyril Stanchev, United Bulgarian Bank 3. Dinko Cherganliev, Promotion Bank 4. Ivanka Petkova, EPI 5. Alexander Stojchev, FAEL Foundation 6. Irena Mladenova, EPI 7. Ruslan Stefanov, EPI The activity of the working group started with several informal meetings of Ivanka Petkova and Vencislava Janchovska with the other participants to discuss the ways of preparing a business plan matrix that incorporates important requirements of Bulgarian banks and credit institutions and find out the best approach to achieve this goal. The working group had several working meetings in the EPI’s office, and a number of informal meetings. The final two roundtables discussing the resulting business plan matrix took place on November 29 and December 14, 1999. Participants discussed the experience of the organizations they represent in lending to SMEs to gather best practices and most common requirements. The outcome of these meetings is a summarized draft business plan, also available in electronic version. 3. Micro-credits for SMEs (workshop, March 22, 2000) a. Agenda:
  14. 14. This workshop was aimed at discussing • the progress made by EPI on the project „Practical Implementation of International Experience in Financing SMEs“ and • activities that would contribute to its most successful accomplishment. b. Participants: Temenushka Dacheva, Leonard Klein, Dr. Boris Landjev, Financial Director, EPI Research Director, EPI Advisor, EPI (sponsored by the Freedom House AVID Program) Eliza Markova, Maria Michaylova, Irena Mladenova, Research Fellow, EPI Library and Project Director, EPI Documentation Office, EPI Ivanka Petkova, Ruslan Stefanov, Executive Director, EPI Research Fellow, EPI 4. Major Findings and Future Priorities in Encouraging SMEs (workshop, June 6, 2000) a. Agenda: The issues discussed included major conclusions and experience gained from EPI staff members’ professional trips (USA, Great Britain, Macedonia, Hungary, Poland, Portugal) and the way the expertise gained fits into project activities and long-term goals. b. Participants: Temenushka Dacheva, Leonard Klein, Dr. Boris Landjev, Financial Director, EPI Research Director, EPI Advisor, EPI (sponsored by the Freedom House AVID Program) Eliza Markova, Maria Michaylova, Irena Mladenova, Research Fellow, EPI Library and Project Director, EPI Documentation Office,
  15. 15. EPI Ivanka Petkova, Ruslan Stefanov, Executive Director Research Fellow 5. “Priorities in Encouraging Small and Medium-sized Enterprises’ Development” (workshop, July 26, 2000) a. Agenda: The workshop discussions aimed at: • defining priorities in encouraging small and medium-sized businesses in Bulgaria; • discussing future goals and activities to be undertaken by the Economic Policy Institute and • discussing future cooperation and joint activities with other organizations working in this field. b. Participants: Temenushka Datcheva, Edward LaFarge, Eliza Markova, Financial Director, EPI Senior Private Sector Research Fellow, EPI Officer, Private Enterprise Office, USAID – Bulgaria Maria Michaylova, Irena Mladenova, Boriana Naletova, Executive Director, Library and Project Director, EPI Documentation Office, FAEL Foundation EPI Nadia Nikolova, Vladimir Pavlov, Ivanka Petkova, Director, SME and EU President, Advisory Board, Executive Director, EPI Integration Programs Foundation for Dept., Agency for SME Entrepreneurship Development Ruslan Stefanov, Lada Stoyanova, Nikolay Yarmov, Research Fellow, EPI Financial and Enterprise Senior Advisor: Enterprise Sectors, Development, USAID -
  16. 16. Economist/Operations Bulgaria Officer, World Bank – Bulgaria c. Proceedings and main conclusions: EPI discussed its achievements in the field of promoting SME development in Bulgaria with experts from donor organizations, ASME and NGOs working in the same field. EPI’s future plans to work on Facilitating Outward-Looking and Export Oriented Strategies for SMEs in Bulgaria was warmly welcomed. Experts agreed that it is very timely and necessary for SMEs to open to global economy. That would bring new quality of management and marketing skills, thus helping them to become competitive and create long-term vision of their business activity. All participants expressed interest in future cooperation with EPI on this project. EPI was offered assistance in future policy dialogue and mechanisms for applying policy recommendations and suggestions (based on EPI research findings) as well as technical assistance. Experts gave helpful suggestions for clarifying the priorities in future EPI project activities. II. PRODUCTS Within project activities on micro-credits for SMEs, EPI has published the following materials: a. brochures: 1. The Role of Commercial Banks in Providing Effective Entrepreneurship Financing in Bulgaria, Economic Policy Institute, Sofia, 2000 (issue in Bulgarian) 2. Occasional Paper, vol.2, N 5: Stefanov R., “Bulgarian Export in the Years of Transition (history and expectations)”, Economic Policy Institute, Sofia, Second Quarter 2000 (issue in English) 3. Credit Schemes for Micro, Small and Medium-sized Enterprises in Bulgaria, Economic Policy Institute, Sofia, 2000 (issue in Bulgarian) 4. Business Plan, Economic Policy Institute, Swiss Agency for Cooperation and Development, FAEL Foundation, Sofia, 2000 (brochure with diskette in Bulgarian) b. policy recommendations: 1. Through its membership in the Bulgarian International Business Association the Economic Policy Institute has contributed to the preparation of the BIBA White Paper on Foreign Investments in Bulgaria. EPI prepared policy recommendations on the Public Offering of Securities Act, and more specifically made proposals on regulation
  17. 17. of minority shareholders’ rights, providing favorable conditions for SMEs, regulating residual state ownership in privatized enterprises etc. 2. Policy Recommendations on improving macroeconomic conditions and encouraging banks to credit SMEs. The document was based on the “Implementation of Foreign Experience in Micro-crediting SMEs in Bulgaria” workshop (September 10, 2000) discussions, findings and conclusions. The policy Recommendations were filed to the Minister of Economy Petar Zhotev, National Assembly, and government officials. III. Development of Institutional Capacity and Promotion of Transatlantic Partnerships During the project implementation EPI stuck to the concept of the project activities. EPI focused its strategy to serve both as: • a provider of knowledge and expertise (to a great extent accumulated during two professional trips to USA) on SMEs and venture capital financing and • a mediator of expertise of US and other Western organizations (Swiss, German) operating in Bulgaria to Bulgarian policy makers and the business community. During its implementation the project gained much more practically oriented focus than initially planned. EPI turned out to be the main expert NGO in venture capital issues and generated a lot of expertise in micro crediting. EPI staff members’ professional travels to USA and European countries contributed to the transfer of experience and best practices to Bulgaria. EPI staff members have also conducted several trips within the country in relation to its research. These trips resulted in strengthening EPI’s partnership with Bulgarian NGOs and gave deeper and closer look to the trends of SMEs development. The implementation of this project contributed to strengthening EPI’s reputation as an influential NGO that generates and disseminates expertise on encouraging SMEs development. Enhancing Regional and Transatlantic Cooperation In the context of the new political climate and relations between countries in South East Europe EPI reached an additional outcome by involving Macedonian experts in the discussions and proposals. EPI has established long-term cooperation with the Macedonian National Agency for SME Promotion (NEPA). EPI has worked in close cooperation with Polish, Hungarian and Czech organizations. Polish (as well as Austrian) experience has been included in the brochure “Credit Schemes for Micro, Small and Medium-sized Enterprises in Bulgaria”. During the project implementation, two EPI staff members have conducted professional trips to the USA that resulted in numerous contacts and transfer of expertise. Project Impact and Results During the project implementation EPI has successfully fulfilled the following goals defined in the project proposal:
  18. 18. • pointing out the major problems and impediments to SME development in Bulgaria; • transfer of foreign best practices that could be applied; • generating policy recommendations and approaches to these problems; • gathering together representatives of different groups involved (ex: bankers, business associations, etc.); • raising public awareness on the issues through giving publicity to the events and research findings in the mass media, dissemination of the publications to the broad public etc. Public events and discussions organized by EPI within the project activities served numerous goals: • transfer of expertise and introduction of best practices generated during EPI’s research and professional travel abroad; • provoking public discussion, with the involvement of policy-makers; • defining critical issues within the field of research and proposing approaches to handle them; • promoting transatlantic and regional contacts and cooperation. EPI got very positive feedback for its publications. We got many requests for additional copies from many institutions – NGOs (intending to distribute EPI publications to their addressees and use in their own researches), governmental representatives (to distribute EPI publications on their public events), Ministry of Economy, Ministry of Finance, Bulgarian Stock Exchange – Sofia, several municipalities, the Economic Commission to the National Assembly of Bulgaria (benefiting from EPI research), foreign partnering organizations, individuals etc.