National Development Institution approved by parliament: what the emergence of a "bank of banks" means for business and recovery

The Verkhovna Rada approved the creation of a National Development Institution based on the global practice of development banks, which is to operate on a “bank of banks” model and accumulate funds from international partners and private investors and direct them to the real sector, focusing on supporting SMEs and recovery, the Verkhovna Rada reported on Wednesday, writes UNN.

DetailsThe Verkhovna Rada adopted the relevant draft law “On the National Development Institution” (reg. No. 11238) in the second reading on October 8.

The document lays the legal foundations for launching an institution that will operate on a “bank of banks” model: it will attract funds from international partners and private investors and direct them to the real sector through a network of partner banks, focusing on supporting small and medium-sized businesses, as well as high-risk recovery projects.

The bill provides for the creation of a National Development Institution by reorganizing the Entrepreneurship Development Fund. On this basis, an institution is being built that is capable of providing indirect support financial instruments: credit and portfolio guarantees, preferential credit lines, factoring, and other risk-financing instruments in cooperation with commercial banks. The institution is to become one of the key drivers of post-war economic recovery – primarily for SMEs, relocated enterprises, businesses in frontline regions, and projects that cannot obtain market financing due to high risks.

The introduction of the National Development Institution is based on the global practice of development banks and development institutions – in particular, on the experience of the German KfW, which became a systemic pillar of reconstruction after World War II. The institution does not compete with the market but compensates for its “failures” by taking on part of the risk and making financing for priority areas cheaper. This is precisely the logic embedded in the Ukrainian bill.

The explanatory materials and communications state that the new institution consolidates existing business support programs of the Entrepreneurship Development Fund, expanding their scale and set of tools. This includes the ability to accumulate funds from IFIs and private investors and direct them through partner banks to targeted segments of the economy – from manufacturing to innovation and critical infrastructure.

AdditionThe Verkhovna Rada previously supported the document in the first reading in June 2024.