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EU support for Lithuanian small and microbusinesses through LCCU credit unions

  •  
    Date: 04 May 2021
  • Lithuanian Credit Union LKU Group (LCCU) signs guarantee agreement with European Investment Fund (EIF) under EU programme for Employment and Social Innovation (EaSI)
  • The guarantee will back a portfolio of around 320 new microloans to small businesses and micro-enterprises in Lithuania, for a total of up to €8 million

The European Investment Fund and the LCCU have signed a cooperation agreement for a guarantee facility, to launch an €8 million microcredit programme for small businesses in towns and regions in Lithuania The guarantee is supported under the European Union Programme for Employment and Social Innovation (EaSI), while 11 credit unions, members of the LCCU credit union group, will act as financial intermediaries.

As a result, much needed financing will become available to small and micro-enterprises in Lithuania through at least 320 new transactions for a maximum loan amount of €25.000. Credits under this agreement will be provided to businesses with no more than 9 employees and an annual turnover not exceeding €2 million. The loans under this guarantee will have a 0.5% lower interest rate compared to the standard rates, and the possible maturity term will range from 3 to 60 months.

Strengthening business in the context of COVID-19 challenges

The majority of companies in Lithuania are micro, small and medium-sized businesses, making additional funds almost vital to ensure streamlined operations and increasing business profitability. The COVID-19 pandemic and the economic downturn it has caused, have exacerbated the funding of credit institutions, making it difficult for small businesses to get the appropriate funding. The EaSI-guarantee managed by the EIF is a means to increase access to financing for business start-ups or development of small enterprises. The operation follows a previous collaboration with LCCU last year.

According to Mindaugas Vijūnas, chief executive officer and chairman of the Board of the LCCU, the relevance of this guarantee facility has not only been growing in the context of the COVID-19 crisis, but may also become one of the ways to guarantee corporate liquidity in the post-pandemic period: "The EaSI guarantee facility will simplify access to finance for SMEs in cases where the company has no sufficient collateral. Companies can use credit for both working capital and business development. We hope that the EIF guarantee provided under the EaSI programme will become a significant contribution to the growth and survival of the country's small business sector in a period, which is difficult for everyone.”

Alain Godard, Chief Executive of the EIF, added: “Especially in the current economic climate, the traditional role of the EIF in promoting access to finance for small companies becomes all the more important. Companies everywhere are dealing with the economic fallout of the pandemic, and Lithuania is no exception. We’re glad to partner with the LCCU to make sure that very small and local companies can still benefit from European financing programmes.

European Commissioner for Jobs and Social Rights, Nicolas Schmit, said: “Small businesses need access to financing to start-up or continue their operations as well as to create and maintain jobs, especially in these challenging times. With support from the EU Programme for Employment and Social Innovation and the EIF, the Lithuanian Central Credit Union will be able to launch an additional €8 million microcredit programme specifically tailored to the financing needs of small businesses in Lithuania.”

Financing under favourable terms

During the year 2020 Credit unions of the LCCU granted 396 loans to micro, small and medium-sized enterprises totalling almost €40 million. Thus, joining the EaSI guarantee facility justifies one of the priority areas for credit unions – providing credit for small business.

"Credit unions of the LCCU are consistently looking for new ways to offer financing solutions to the small business sector under the most favourable terms. We are pleased to develop a partnership with the EIF, which has made a significant contribution to fostering a sustainable Lithuanian small business sector", adds Rūtenis Šukevičius, director of the LCCU Treasury Department.

Background information:

The European Investment Fund (EIF) is part of the European Investment Bank Group. Its central mission is to support Europe's micro, small and medium-sized businesses (SMEs) by helping them to access finance. EIF designs and develops venture and growth capital, guarantees and microfinance instruments which specifically target this market segment. In this role, EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth, and employment.

The European Union Programme for Employment and Social Innovation ("EaSI") aims at supporting the EU's objective of high level employment, adequate social protection, fighting against social exclusion and poverty and improving working conditions. The microfinance and social entrepreneurship axis of the EaSI programme provides support to financial intermediaries that offer microloans to entrepreneurs or finance to social enterprises. The objective is to increase access to microfinance, which includes microcredit i.e. loans of up to €25,000, in particular for vulnerable persons and micro-enterprises. In addition, for the first time, the EU is supporting social enterprises through investments of up to €500,000. The microfinance and social entrepreneurship support is currently being implemented through the EaSI Guarantee, which enables financial intermediaries to reach out to (potential) entrepreneurs that would not have been able to gain finance otherwise due to risk considerations. It is also being implemented through the EaSI Capacity Building to reinforce the capacity of financial intermediaries in the areas of microfinance and social finance through equity investments; and the EaSI Funded Instrument, which provides senior and subordinated loans to microfinance institutions and social enterprise lenders to boost on-lending to micro-enterprises and social enterprises. The European Commission has selected the EIF to implement the EaSI financial instruments,.

The LCCU Group is a cooperative founded in 2002 and the larger of the two central credit unions operating in Lithuania. The LCCU Group actively finances micro, small and medium-sized business projects, start-up companies, farmers and businesses engaged in agricultural activities. LCCU and its credit unions have continued to increase the volume of loans granted to customers in the recent years. Total amount of loans issued in the first half of 2020 amounted to €383 million, i.e. 9.5 percent more than at the end of 2019. Credit unions offer their members an opportunity to save by concluding term and savings deposit contracts. Term and savings deposits portfolio of the LKU Credit Union Group amounts to over €281 million.

In the context of the COVID-19 crisis, the LCCU Credit Union Group is active in the field of assistance to business: It has already issued €7 million under the financial assistance facility "Loans to the Businesses Most Affected by COVID-19" and loans under the facility "Portfolio Guarantees for Loans 2", which aim to facilitate access to credits for companies in order to improve their liquidity. It also participates in the financial facility "Loans to Ensure the Liquidity of Operators in the Production, Processing And Marketing of Agricultural And Fishery Products During the COVID-19 Outbreak", helping agribusinesses by financing their working capital.

Press Contacts:

EIB Group: Tim Smit, Tel: +352 691 28 64 23, t.smit@eib.org, Follow the EIF on Twitter

European Commission: Flora Matthaes, +32 460 755148, flora.matthaes@ec.europa.eu

LCCU: Simona Ramanauskaitē, +370 8 615 23 090, s.ramanauskaite@lku.lt

 

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