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The government, however, hopes to make adjustments to the program offering cheap loans to Ukrainians.

As Covid-19 hit Ukraine last year, the Ukrainian government introduced cheap loans aiming at helping entrepreneurship in Ukraine. With interest rates as low as five to nine percent, the loan program set out to help the small and medium-sized companies expand their business and hopefully make them decide to stay in Ukraine. 

However, recent numbers show that the money ends up in the wrong pockets. Ukrainians have loaned more than 2.6 billion dollars through the program, but Kyiv Post writes that it isn’t helping the ones it was intended to. In fact, most end up in established firms. 

An expert talking to Kyiv Post said that the program’s conditions for getting a loan are too harsh and demand too much collateral. 

“They would have been better off giving the money to pensioners,” said financial expert Oleksiy Kushch to the paper and said that while more than $2.6 billion has been loaded out through the program, only $300 million went to the small and medium-sized companies that it was intended to. 

Kyiv Post refers to several other sources who are also criticizing the loan program. Among others is Rodion Morozov, deputy board chairman at UkrGasBank.

“At some point, the scheme went wrong because several banks started to refinance their own loans at 0%,” he told the Kyiv Post.

History of the loans

The loans were introduced at the beginning of last year by the previous government led by the back-then Prime Minister Oleksiy Honcharuk. As previously stated, the idea was to offer affordable loans to small and medium-sized companies.

“Over the last six months, the cost of loans to banks has dropped significantly, but for large-scale changes, the Government has decided to offset partially the interest rate so that a person can actually get a loan at 5-7-9% depending on how many jobs will be created. It is important for us to provide entrepreneurs with more resources, more freedom, and more opportunities,” Oleksiy Honcharuk stressed back then.

The ambitious goal was to create 90,000 new jobs and attract more than 2 billion UAH in domestic investments to small businesses. 

“Surveys indicate that one of the biggest barriers to the development of micro and small businesses is a lack of affordable financing, higher interest rates, and higher mortgage requirements. The state program “Affordable Loans at 5-7-9%” aims to solve this problem,” said Minister of Finance Oksana Markarova last year. 

What will happen now?

The government’s ambitious goals haven’t come true yet, but plans are underway to make adjustments. The 5-7-9 percent program is still mentioned in the 2022 budget law, where it is said to have been a pandemic crisis measure in 2020. 

“We expect that next year’s GDP growth will be up to 5% – this is also the result of the investment. We are trying to develop the program [“Affordable Loans at] 5-7-9%” and develop a new program of mortgage lending at 7 percent, moreover, a State Financial and Housing Leasing Company will be created. All these things will facilitate economic development,” said Prime Minister Denys Shmyhal recently. 

The plans to renew the affordable loans program haven’t stopped its criticism. In June, Raiffeisen Bank CEO Alexander Pisaruk asked the government to completely stop issuing the loans, saying that they just going to already profitable businesses. 

“According to Raiffeisen Bank’s own statistics, a typical (5–7– 9%) program participant can be described as a fully operational agricultural enterprise that has received an anti-crisis loan or refinancing,” the letter by the CEO said.