European Bank for Reconstruction and Development (EBRD)

What Is the European Bank for Reconstruction and Development (EBRD)?

The term European Bank for Reconstruction and Development (EBRD) refers to a financial institution established in 1991. The organization was developed to help Eastern European and ex-Soviet countries transitioning into democracies by developing free-market economies after the fall of communism. The EBRD, now headquartered in London, continues its work in more than two dozen countries from Central Europe to Central Asia, investing mainly in private banks and businesses, including new ventures and existing companies.

Understanding the European Bank for Reconstruction and Development (EBRD)

The European Bank for Reconstruction and Development works in 38 different countries in Southern and Eastern Mediterranean, Central and Eastern Europe, and Central Asia. It is publicly owned by shareholders in 69 countries. It only supports countries that are committed to democratic principles. The organization also promotes environmentally sustainable development and gender equality and promises to be fully transparent. The organization does not finance projects related to the tobacco industry, defense, certain alcoholic products, stand-alone gambling facilities, or substances banned by international law.

According to the most recent data, the bank has financed 5,035 projects since 1991 totaling €119.6 billion in business volume. The EBRD offers financing for projects in a range of sectors, including public works, agribusiness, financial institutions, energy efficiency, manufacturing, property, tourism, telecommunications, natural resources, transport, information technology, and municipal infrastructure.

Financing is structured as:

• equity financing and loans
• leasing facilities
• trade financing
• professional development
• guarantees
• other support programs

Both large and small projects are financed, with the latter typically financed indirectly through intermediaries. Some of these smaller projects include micro-business banks, commercial banks, leasing facilities, and equity funds. The EBRD offers financing intended to support the establishment and development of the private sectors of formerly communist and Eastern Bloc countries, including working to help privatize companies that were previously publicly owned.

In order to receive funding from the EBRD, the project must be located within a recipient country of the EBRD, be commercially promising, involve in-kind or in-cash contributions from a sponsor, contribute to the development of the private sector and the strengthening of the local economy, and satisfy environmental sustainability standards and banking best practices.

Special Considerations

The EBRD also helps facilitate the transition of public companies to privately held entities as well as the restructuring of state-owned firms and helping to improve municipal services. Since its inception, only one country has graduated from a recipient to a financing nation—the Czech Republic.

The bank announced a financing package to address issues relating to the COVID-19 virus. It pledged €21 billion, all of its 2020-2021 financing to help regions fight the economic impact of the pandemic.

Criticism of the European Bank for Reconstruction and Development (EBRD)

Some projects financed by the organization were deemed socially or environmentally harmful, putting the EBRD in the middle of controversy. For instance, the group financed investments in oil, coal, and gas production, as well as dams on wild European rivers. Investment planned in a dam at a national park in Macedonia (later renamed North Macedonia) was suspended in 2017 when it came to light that the area was an important center for biodiversity and a crucial reproductive territory for the Balkan lynx.