August - September 1998

By Paul Moran

Throughout the New Independent States, entrepreneurial activity is growing and small businesses are beginning to succeed. Yet serious impediments remain. Lack of basic know-how and lack of access to capital are two immediate obstacles facing entrepreneurs. Through its grant making and lending activities, the Eurasia Foundation is working to help overcome these problems.

The Eurasia Foundation, which began operations in 1993, makes small grants that encourage a rigorous small business sector in the NIS, facilitate the transition from centrally planned to market economies, and improve the flow of information available to NIS citizens. Among other priority areas, Eurasia grants target small business development, management training, and facilitating electronic communications.

Training New Entrepreneurs

When Nadezhda Zaichenko wanted to open a garment shop in Tula, 100 miles south of Moscow, she realized she needed training in business fundamentals. "I didn't know how to do the accounting or the taxes for a business," she said. "Everything was a fog." A grant by the Eurasia Foundation provided her and 29 other budding entrepreneurs with the business training necessary to operate and expand their small businesses.

In late 1996, Eurasia awarded the Training and Business Center in Tula a $23,450 grant one of the almost 600 business development grants the Eurasia Foundation has awarded to support the best business ideas in the region. Zaichenko and other winning applicants attended an 11-week training class in business management, accounting, finance, taxation, insurance, and business plan writing.

According to Zaichenko, a former schoolteacher, the training gave her both the confidence and knowledge to turn what had been a hobby into a successful business. "I wasn't very sure of myself, but the trainers showed me how to do everything, and I realized it was not so difficult or dangerous to start a business," she said, proud that her profits have quintupled over the past few months.

Providing Capital to Small Businesses

Three years ago the Eurasia Foundation launched the Small Business Loan Program (SBLP) to provide small businesses with access to capital. The program's overall goal is to offer crucial support to struggling small businesses and help create jobs in economically depressed areas. Working in partnership with local banks, the Small Business Loan Program currently operates in Armenia, Russia, and Ukraine. Loans are denominated in dollars and generally range from US$15,000 to US$100,000, with the average size less than US$30,000.

The story of Armenian company Sargisian and TL illustrates the impact small loans can have on the growth of small businesses. In 1994, brothers Armen Safarian and Sabri Sargisian started Sargisian and TL, a manufacturer of wooden doors and windows in Yerevan, Armenia. As orders began to grow, they decided to expand the business to include living room furniture, but it soon became clear that the company desperately needed capital to reach its new goals. As a result of a US$24,000 loan from Eurasia, the company was able to meet the increasing demand for its products and provide 24 new jobs for highly qualified specialists.

The SBLP does more than simply provide loans to small businesses. According to program director Bill Grant, "The program shows participant banks how to lend profitably to the small business sector." The partnership arrangement allows local banks to initially share equally in the loan decision, credit risk, and interest earnings while learning proven credit analysis and collection methodologies. The SBLP is designed to gradually withdraw by lessening its oversight role and share of loan risk. The local bank's share of the loan risk will rise to 100 percent over a two- to three-year period as its ability to analyze, monitor, and collect loans increases.

How the Eurasia Foundation Works

The Foundation works at the micro-economic level to support the development of small business; to help regional administrations develop adequate laws to support business growth; and to spark the nonprofit sector that provides an important bridge between business and government.

Currently funded by a mix of public and private donors, the foundation has awarded more than 2,800 small grants, more than 85 percent of which were made directly to NIS organizations through the foundation's field offices in Almaty, Baku, Chisinau, Kyiv, Minsk, Moscow, Saratov, Tashkent, Tbilisi, Vladivostok, and Yerevan. The foundation awards grants totaling approximately US$18 million per year. The SBLP has made 110 loans totaling over US$3 million.

To learn more about the Eurasia Foundation's programs, contact the foundation's Washington, D.C. office at 202-234-7370. For further information about the Small Business Lending Program, contact Bill Grant at 202-234-7370 ext. 112. More information may also be found at the foundation's website www.eurasia.org, and through BISNIS OnLine at www.mac.doc.gov/bisnis/finance/finance.htm.

Paul Moran is Development Coordinator with the Eurasia Foundation in Washington, D.C.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)