Founded as the German-Ukrainian Fund, the BDF has developed into the most important Ukrainian financial institution for small and medium-sized enterprises (SMEs) in its 25 years of existence. Since the outbreak of the war, the demand for corporate financing has been higher than ever. KfW has therefore been supporting the BDF on behalf of the German Federal Government with over EUR 200 million since the start of the war.
Russia's war of aggression against Ukraine, which has been ongoing since February 2022, has had a significant negative socio-economic and economic impact on the entire country. Ukrainian companies are also affected by the harsh consequences of the war: the destruction of production facilities, high inflation, labour migration, declining sales and plant closures are part of everyday life. The effects on the labour market are dramatic. According to the International Labour Organization (ILO), the unemployment rate rose from 9.8 % before the war to 19 % in 2023.
The financial sector plays an essential role in the (re)financing of companies, but has been severely affected by the war. Due to the high credit risks and refinancing costs, banks can currently only offer companies loans at high interest rates. This makes it even more difficult for many companies to continue their business activities.
The preservation of companies – also and especially in a war context – is of great importance. Particularly small and medium-sized enterprises make a decisive contribution to the functioning of daily life, ensure the production of important goods and services, generate tax revenue and thus help to maintain state functions. Above all, however, they secure jobs – a central task, not least in times of war. According to the World Bank, the poverty rate has risen rapidly by a third, from 5.5 % (2021) to 24.1 % (2022), partly due to the devaluation of the hryvnia. This means that more than seven million additional people are affected by poverty. Companies can make a difference here.
The Business Development Fund (BDF) was founded in 1999 as the “German Ukrainian Fund” by KfW on behalf of the German Federal Government, the Ministry of Finance of Ukraine and the National Bank of Ukraine. For 25 years, the BDF has been supporting the Ukrainian economy by providing financing for small and medium-sized enterprises (SMEs). Through partner financial institutions (primarily commercial banks), SMEs receive loans, interest equalisation payments, grants and loan guarantees.
Since 2020, the BDF has been implementing the most comprehensive government financing programme for SMEs to date. In cooperation with more than 40 banks, the “Affordable Loans 5-7-9” programme gives companies access to financial services with favourable interest conditions. KfW has supported the “5-7-9” programme with EUR 200 million since the start of the war.
Since 2020, over 65,000 loans with a total volume of EUR 4.7 billion have been issued to SMEs. In 2023 alone, the programme created over 67,000 jobs and secured more than 200,000. As a result, grocery shops, small logistics companies and agricultural businesses can maintain their operations.
Over the years, the BDF has become a key player in the financing of Ukrainian SMEs through the implementation of national, regional and donor-funded programmes. To meet the increased demand for funding for SMEs and the growing scope of activities, as well as to maximise efficiency, institutional strengthening of the BDF is essential. The Ukrainian Ministry of Finance has therefore begun a comprehensive transformation of the BDF. A draft law has already been prepared. The common goal is to transform the BDF into a national development institution for SMEs and a central force for Ukraine's economic reconstruction. In the medium to long term, Ukraine should also be able to acquire and implement EU funds directly. KfW and the World Bank are supporting this reform process, with other international partners to follow. Together, they aim to achieve one goal in particular: the strengthening towards a centralised national development institution for SMEs, the engine for reconstruction and stability.
