Public finance body targets SMEs and startups in Cyprus

New business finance organisation expected to launch within 18 monthsCyprus’ newly established Cyprus Business Development Organisation is expected to become operational within the next 12 to 18 months, despite legislation creating the institution having already been approved by parliament. The organisation is intended to become Cyprus’ first dedicated public development finance institution, helping small and medium-sized enterprises (SMEs), startups and self-employed professionals gain access to funding where conventional financing remains difficult to obtain. Following parliament’s approval of the legal framework earlier this month, the next major step will be the appointment of the organisation’s seven-member board of directors, expected next month. The initial board will serve in a transitional capacity for two years while preparations begin for the organisation’s full operation, including the development of financing programmes, lending tools and other financial instruments. Rather than functioning as another commercial lender, the organisation is intended to address financing gaps in the Cypriot market, particularly for businesses that struggle to secure funding because of limited collateral, shorter operating histories or higher perceived risks. Its objective is to complement, rather than replace, the banking sector by stepping in where private finance is unavailable or insufficient. The legislation gives the organisation responsibility for designing financing schemes, providing loans and guarantees, and carrying out studies to identify weaknesses in Cyprus’ financing market, allowing it to shape future support based on evidence of unmet demand. Beyond improving access to finance, the organisation is also expected to encourage entrepreneurship, strengthen business competitiveness and support investment linked to innovation, digital transformation and the green transition. Unlike a conventional government grant scheme, the organisation will also have access to a broader range of funding sources. After receiving €60 million in initial state capital, it will be able to finance its activities through its own operations, borrow from European and international financial institutions and, where strategic priorities are approved, benefit from state guarantees. This broader funding model means the organisation is intended to operate as a national development finance institution rather than simply distributing public subsidies. Although its precise role will only become clear once operations begin, the model broadly resembles development finance institutions already operating elsewhere in Europe. At European Union level, the organisation shares similarities in purpose with the European Investment Fund, which uses guarantees, equity investments and other risk-sharing tools to improve access to finance for SMEs and innovative businesses. It also reflects elements of the European Investment Bank’s (EIB) guarantee programmes, which encourage additional lending by reducing the risks faced by financial institutions. At national level, comparable institutions include Germany’s KfW and the United Kingdom’s British Business Bank, both of which aim to improve financing conditions for smaller businesses through public-backed lending and guarantee programmes. However, Cyprus’ new organisation appears intended to combine several of these functions within a single institution, bringing together lending, guarantees, potential equity-style financing and market analysis under one umbrella. If implemented as planned, this could give Cyprus a more integrated development finance framework than is often found in larger economies, where these responsibilities are spread across multiple organisations. The legislation establishing the organisation was approved unanimously by the House of Representatives, with parliament also passing an amendment requiring the criteria governing loans and guarantees to be established through regulations approved by the House. A proposal to limit medium-sized enterprises to 20 per cent of the organisation’s total financing was rejected, along with several additional amendments. During parliamentary scrutiny, the Finance Ministry revised the legislation to incorporate recommendations from MPs and stakeholders. Among the changes, provisions allowing the organisation to establish companies or receive additional powers through secondary legislation were removed, while the category of eligible beneficiaries was narrowed by excluding small mid-cap companies. The revised law also strengthens governance by introducing stricter suitability requirements for board members, conflict of interest safeguards and the exclusion of politically exposed persons and public officials from board membership. Additional provisions require consultation with the State Aid Commissioner before financing schemes are introduced, annual reporting to parliament, performance indicators and borrowing limits. The organisation will operate under the supervision of the Finance Minister, while oversight of anti-money laundering obligations will be exercised by the Central Bank of Cyprus (CBC). The creation of the organisation also forms part of Cyprus’ Recovery and Resilience Plan, representing one of the final milestones required before the country can receive the plan’s ninth and final payment. Earlier this month, the Cyprus Chamber of Commerce and Industry (Keve) welcomed parliament’s approval of the legislation, describing the move as “a substantial reform for the Cypriot economy”. “The creation of the Cyprus Business Development Organisation constitutes a substantial reform for the Cypriot economy,” Keve said. The chamber argued that the organisation should help close longstanding financing gaps, support entrepreneurship, strengthen competitiveness and accelerate innovation alongside Cyprus’ green and digital transition. Keve also reiterated that limited alternative financing remains one of the biggest barriers facing SMEs, with businesses relying heavily on bank lending for investment and expansion. “Businesses’ heavy reliance on the banking system has restricted access to capital for investment, expansion and innovation,” the chamber said. It added that the new organisation is expected to broaden Cyprus’ financing ecosystem by creating additional channels to support entrepreneurship and productive investment. Keve said it had participated throughout the consultation process, submitting proposals intended to help establish an effective, flexible and credible institution capable of meeting the real financing needs of Cypriot businesses. “The adoption of the legislation is only the first step,” the chamber said. “The next challenge is to ensure the organisation becomes operational swiftly and effectively so that it can evolve into a genuine development tool that improves businesses’ access to finance, encourages investment and supports the sustainable growth of the Cypriot economy,” it added. Keve also pledged to continue working with the Finance Ministry and the organisation’s future management to help ensure its objectives are successfully implemented for the benefit of businesses and the wider economy.