The World Bank’s Board of Executive Directors today approved a partial credit guarantee in the amount of EUR 250 million (US$ 273,580,000 equivalent) to Turkey Export Credit Bank (Eximbank) for the Turkey Long-Term Export Finance Guarantee Project. The project has the objective to improve access to longer-term finance for Export Oriented Small and Medium Enterprises (EOSMEs) and Export Oriented Mid-Cap Enterprises (EOMCEs). At least 70 percent of the guaranteed loan amounts will be used for sub-loans to EOSMEs, and at least 10 percent of the guaranteed loan amounts will be earmarked for lending for women-inclusive firms.
IBRD Partial Credit Guarantee will enable Turkey’s Eximbank to raise up to EUR 500 million in long-term funding from commercial lenders, so to as to be able to provide working capital and investment sub-loans to private exporting enterprises. It will also assist Eximbank to achieve longer maturity and lower all-in cost than are currently achievable without a guarantee. The Project will utilize the market finance raised by Eximbank with the support of IBRD Guarantee to extend sub-loans to eligible SME and Mid-Cap exporters.
In the longer term, achieving sustained rapid export growth will require that exporters become more competitive by producing high quality goods at more attractive prices, expanding the product range to the faster-growing market segments, and increasing the production of more capital intensive and technologically sophisticated goods, all of which will necessitates new investments. However, due to the impact of COVID-19, there is a need to help viable exporting firms tie over to the post-COVID era.
“In the short term, it is essential to preserve the export capacity of Turkey as its firms have severely been affected by the onset of COVID-19 crisis, so that they will be able to survive and contribute to the future recovery,” says Auguste Kouame, World Bank Country Director for Turkey. “This project will contribute to providing uninterrupted and improved access to finance to viable exporting firms during these difficult times. It will therefore help preserve Turkey’s participation in global value chains.”
Turkish EOSMEs and EOMCEs receiving the credit from Eximbank under the Project will be the main direct beneficiaries. Another project beneficiary will be Eximbank itself and the broader universe of Turkish exporters served by it, insofar as the Project is expected to strengthen Eximbank’s capacity to raise long-term funding in international markets, and to channel this funding into longer-term loans to exporting enterprises, including SMEs and women-inclusive firms.
Prior to COVID-19, access to long term finance was identified as a major constraint to Turkish firms’ export performance. COVID-19 has intensified this constraint.
“Access to finance is particularly constrained for Small and Medium Enterprises (SMEs) who account for 73 percent of total employment, 62 percent of total revenue, 58.3 percent of total investment, 55.4 percent of total exports, and represent 99 percent of all firms in Turkey,” remarked Alper Oğuz, Task Team Leader of the Project. “Financing the technology upgrading and productivity improvement of SMEs is vital for Turkey to reach its ambitious export growth goals.”
The project is aligned with Turkey’s Country Partnership Framework (CPF) for FY18-FY21, which focuses on the three strategic objectives of growth, inclusion, and sustainability. The Project will contribute to the CPF by enhancing access to finance for underserved markets and improving competitiveness and employment in selected industries. The project is also aligned with the WBG approach to supporting client countries in mitigating the impact of COVID-19 on their economies, firms and workers.