III. Regional Program--Enterprise Funds

U.S. Government Assistance to Eastern Europe under the Support for East European Democracy (SEED) Act
Bureau of European and Eurasian Affairs
January 2004

The Enterprise Fund program was originally authorized by Congress through the Support for East European Democracy (SEED) Act of 1989. That Act established the Funds as unique "public-private partnerships" for the purpose of investing U.S. Government (USG) funds to support the private sector and nascent market economies of Poland and Hungary. Subsequent Foreign Appropriations Acts extended the authorization to establish Funds in other Central and Eastern European countries, i.e. Albania, the Baltic States, Bulgaria, Romania, and Slovakia.

Financial Status of U.S. Government-backed CEE Funds as of September 30, 2003:

Funds Authorized
Funds Obligated
Funds Expended

Enterprise Funds

The Polish-American Enterprise Fund (PAEF)
Hungarian-American Enterprise Fund (HAEF)
Czech-Slovak-American Ent. Fund (CSAEF)
Bulgarian-American Enterprise Fund (BAEF)

Baltic-American Enterprise Fund (BalAEF)

Romania-American Enterprise Fund (RAEF)
Albanian-American Enterprise Fund (AAEF)

Each Enterprise Fund operates as an independent, autonomous organization, managed by a Board of Directors, with the USG maintaining oversight responsibility for the operations of the Funds. This model was specifically designed so that the Funds could deliver assistance as rapidly as possible, with enough flexibility to develop programs and use a variety of investment approaches to address specific conditions in each country.

USAID's Bureau for Europe and Eurasia (E&E) is responsible for managing all Enterprise Fund activities, with oversight from the Department of State's Office of the Coordinator for U.S. Assistance to Europe and Eurasia ("the Coordinator"). Since their formation in 1990, the Enterprise Funds have created and saved thousands of jobs, transformed industry sectors, increased the levels of business experience and corporate governance, and have been an important U.S. foreign policy success.

The majority of the Funds have now privatized their management companies in order to attract new private investment capital and provide future incentives for their employees. In addition to their efforts in making equity investments and long-term loans to small and medium-sized businesses, the Funds have introduced home mortgage lending, mortgage securitization, credit cards, pension funds, mezzanine financing, leasing, and investment banking. These initiatives are a testament to the positive reputation that the Funds' management teams have earned. Moreover, each Fund has become a resource to which other investors can turn for information on the business climate in the countries of operation. A brief summary of each Fund follows.


Established in 1995, the Albanian-American Enterprise Fund (AAEF) was capitalized with a $30.0 million USAID grant. Since then, the Fund's investments have been a stimulus to the Albanian economy by providing growth and export-oriented small and medium-sized enterprises (SMEs) with access to equity, loans, and leases.

As of the end of FY 2003, the AAEF had made significant strides in consolidating and strengthening its portfolio. Having disposed of most of its problem investments, the Fund has entered a growth track with its existing investments. In addition, new opportunities for investment are emerging in Albania. These developments bode well for the future of the AAEF.

The AAEF has achieved steady progress in enhancing its overall management and the professional skills of the staff. Detailed financial reports are standard and include a debt risk rating and review system that is designed to identify early signs of credit deterioration and to address solutions. Each of the Fund's investment officers has undergone intensive training with established European venture capital firms as part of the overall training program.

Over the last year, the Fund has exited profitably from a number of real estate investments. Brief details on some of these investments follow. Teqja, a manufacturer of PVC and polyethylene plastic pipe, grew quite successfully in 2003, and is one of the leading suppliers plastic pipe in Albania. Investment by AAEF has allowed the company to procure its products in a more energy-efficient and environmentally friendly manner. It recently won a number of contracts to supply plastic pipe. Albania Fiberoptic Backbone has encountered some issues with the local telecommunication company regarding the installation of its network and is working with resolve these issues in short order. AAEF has invested significantly in Global Gaz, a wholesale and retail distributor of liquid propane gas (LPG). This investment has allowed the company to import a greater volume of a more environmentally sound energy source for Albanians.

The American Bank of Albania (ABA) remains the Fund's largest investment. The ABA has become one of the most important financial institutions in Albania, and is regularly consulted on legislative and regulatory issues affecting the banking industry. At the end of December 2003, the ABA had $250 million in deposits and $65 million in loans outstanding. Unaudited pre-tax profit for the first nine months of 2003 reached $8.6 million, as compared to $3.1 million during the same period in 2002. The ABA now has 193 skilled employees and operates branches in Tirana, Durres, Vlore, Fier, Elbasan, Rinas Airport, and the U.S. Embassy. The bank offers traditional services and has pioneered many new products. This includes an innovative web banking product that allows Albanian expatriates to send remittances to relatives in Albania more effectively and transparently.

As of September 30, 2003, USAID had obligated $30.0 million to the Fund. From AAEF's inception to that date, the Board had approved 54 investments worth over $35 million, disbursed 53 investments worth over $30.6 million, and had four investments worth $4.7 million under review. The Fund has divested six investments worth $3.1 million and received 20 loan repayments of closed investments worth nearly $5.0 million.

The Albanian economy has remained relatively steady, with healthy growth estimated by the IMF at 6 percent and a projected inflation rate of 2-4 percent per annum for 2003. The balance of payments deficit is expected to increase to $25 million for FY 2003. The lek has appreciated moderately against the dollar. The most serious threats to sustained economic growth revolve around water and energy shortages, and the impact they have on domestic production. The political situation has remained relatively stable. Security remains an issue, as well as corruption and the rule of law.


Since beginning operations in 1995, the $50.0 million Baltic-American Enterprise Fund (BalAEF) has become a reliable financial partner for growth-oriented private companies, entrepreneurs, and new homeowners throughout Estonia, Latvia, and Lithuania. In this role, the BalAEF is attracting additional capitalization from commercial sources, thereby leveraging the Fund's positive impact on the Baltic region.

As of March 31, 2003, the Fund had $130 million in investments approved and $125 million in investments disbursed. These figures represent 17 equities, 127 business loans, and over 400 mortgages. The portfolio has thus far returned $73 million in investment income and principal payments that have been re-invested.

In accordance with the build-out of the Fund's business lines, BalAEF has established Baltic-American Mortgage Holdings and Hanseatic Capital (both Delaware LLCs), with respective subsidiaries in the Baltic countries. Since the last Semi-Annual Review in June 2003, the Fund has made significant progress in its mortgage and finance operations. The Fund continues to expand its activities against a backdrop of positive GDP growth in the Baltic region. Highlights are as follows:

Mortgage Operations as of June 30, 2003:

  • Baltic-American Mortgage Holdings has established subsidiaries in Estonia and Latvia.
  • Total external funding for the mortgage program raised to date exceeds $80 million.
  • Credit quality is strong, with total delinquencies over 30 days at 1.6 percent.
  • Loan production has continued to grow; recent monthly loan approvals are averaging $5 million
  • Portfolio growth is consistent, with $55 million and about 3,500 loans outstanding.
  • A $50 million line of credit was arranged for the mortgage program through the International Finance Corporation (IFC). A total of $9.8 million of external financing has been drawn down to date.
  • Through the Latvijas Unibanka line of credit for the mortgage program, $20 million of external financing has been drawn down to date, and the bank recently approved a $5 million increase to this facility.
  • A new �8.5 million line of credit was established with Nord LB in Lithuania to expand mortgage lending there.
  • The Fund now services $5.2 million in mortgage portfolio holdings it originated and sold to Latvijas Unibanka.
  • Work toward portfolio securitization with Wachovia securities is ongoing, and Moodys' Investor Services reviewed the mortgage portfolio in preparation for securitization.
  • Loan demographics cover a broad range of borrowers acquiring property, renovating/improving property, or unlocking home equity to improve liquidity.
Commercial Financial Operations:

  • The Fund established Hanseatic Capital to provide subordinated debt and equity products to small and midsized companies operating in the Baltic countries.
  • Hanseatic Capital has established a subsidiary in Estonia and is forming one in Latvia.
  • Hanseatic has equity of $7.5 million committed from the Fund, subordinated debt of $7.5 million from IFC, and senior debt of $5 million from Hansabank of Estonia.
  • The investment focus is on companies with strong management teams that can service debt and are capable of growth.
  • New investments in the paint manufacturing, printing, and health care industries were approved for $2.6 million in commitments.
Real Estate:

In 2003, the Fund decided to phase out commercial real estate investment activities, which enables management to focus its complete attention on the growth of Baltic-American Mortgage Holdings and Hanseatic capital, both of which have succeeded in attracting external capital.


The Bulgarian-American Enterprise Fund (BAEF), which has received $57.8 million in funding, has actively invested in Bulgaria since 1992. As of June 30, 2003, the Fund had placed $72.1 million in 905 investments. Total reflows since inception are $39.5 million.

The Fund has benefited from an improved operating environment since 1992. Although the country's continuing transition has been uneven and at times turbulent, Bulgaria had made great strides toward building democratic political institutions, establishing the rule of law, and converting its economy from state-owned and politically directed to a market dominated by privately owned businesses. While its capital base of $57.8 million is miniscule compared to the total economy, the Fund has made a significant contribution to Bulgaria's progress. Since 1992, it has:

  • Successfully exited the Rodina Pension Fund, Lebed Hotel, Europa Bioscience, Fest Office Building, and sold the last four units of the Exinovgrad Townhouse complex.
  • Grown its investment in the Bulgarian American Credit Bank (BACB), its 100 percent-owned subsidiary, which has been recognized as Bulgaria's largest long-term lender, with a loan portfolio exceeding �80.8 million. As of June 30, 2003, BACB's assets were in excess of �89 million, with full-service banking branches in five major cities. The BACB has built a base of $7.2 million in deposits from local individuals and institutions. Its full-service retail bank has attracted $12.9 million. The BACB has also secured short-term interbank lines of about $15.7 million with 13 local banks. They have issued a $3 million unsecured bond and received loans from DEG and the Black Sea Trade and Development Bank.
  • Created the country's first and largest Hotel Lending Program, providing financing to more than 150 hotels throughout the country. BAEF and its wholly owned subsidiary, the Bulgarian American Credit Bank (BACB), have been recognized by the Union of Private Hotel Owners for their efforts in developing Bulgarian tourism.
  • Initiated Bulgaria's first Mortgage Lending Program, which provided financing of more than $29 million to more than 1,400 homeowners.
  • Attracted outside financing from the European Bank for Reconstruction and Development (EBRD), IFC, and the Netherlands Development Finance Company (FMO), among others.
  • Assisted in the passage of the Mortgage Bond Legislation Act and helped BACB become the first Bulgarian bank to issue mortgage bonds and have them registered with the Bulgarian Securities Commission for secondary market trading.
  • Built a successful small and medium-sized enterprise (SME) lending program, financing more than 1,000 businesses through BAEF and BACB.
In addition, the Fund's Construction Lending Division has increased the number of its construction loans to 27, with $12.8 million committed.

BAEF, now in its 12th year of operation, is considering its options for phase-out. At this time, the Board of Directors has determined that the Fund's most promising legacy remains the BACB. The Fund has been actively reducing its exposure to equity investments and transferring many BAEF loans to the BACB.


The Czech and Slovak-American Enterprise Fund (CSAEF) was established in 1991 and capitalized with a $65.0 million USAID grant. CSAEF was set up to offer financing and management assistance to private enterprises in the Czech and Slovak Federal Republic (CSFR). The Fund helped privatize former state-owned enterprises, assisted with joint venture projects, and advised Western firms interested in investing in the CSFR. The forms of investment included loans, equity leases, and guarantees. Following the CSFR's dissolution on January 1, 1993, the CSAEF Board of Directors created two separate subsidiary Funds through which to pursue its objectives: the Czech-American Enterprise Fund (CAEF) and the Slovak-American Enterprise Fund (SAEF). In 1996, the Board of Directors decided to discontinue the Fund's activities in the Czech Republic, the office in Prague was closed, and the investment portfolio was sold to a third party investment company. Today the Fund is active solely in the Slovak Republic.

The Fund regained momentum in 2003, taking critical actions to shore up existing investments and develop the pipeline for new investments. CSAEF is looking to make two to three quality investments over the next two years and expects to be fully invested by spring 2006. The Fund will also investigate possible mechanisms to attract additional private investment to Slovakia.

In 2003, the CSAEF committed $8.8 million to three new investments. The two most significant were the Value Growth Fund Slovakia ($5.7 million) and Gotive ($2.7 million). The Fund is a founding investor in the Value Growth Fund, along with EBRD, Raiffeisen, and locally owned Tatrabank, for a total of �14 million (about $16.8 million). This fund looks to invest in companies under restructuring and in need of finance, but with a good underlying business model. Gotive produces handheld wireless devices that uniquely integrate wireless, GPS, bar code, magnetic strip reader, and other technologies. This technology is attracting a lot of interest from the communications community, and the company is doing better than expected.

As a whole, the Fund's investment in the three wood companies began to turn the corner in 2003. Originally, the Fund planned for the sawmill (Novomanip) to supply Novo Horehronska (producers of three-layer board) and Slovlepex (wooden window scantlings). However, non-transparent pricing practices by the state-owned forestry enterprise forced these firms to look outside of Slovakia for raw timber. As a result, the companies are being managed by the Fund as individual entities. This shift in strategy has yielded positive results. The Fund also has invested in an Internet job-portal, a meat and sausage factory, and Slovakia's leading producer of chalk.

The investment climate in Slovakia turned around strongly in the last year, and significant FDI is starting to flow into the country. Economic stability, impending EU accession, relatively lower costs, highly educated labor, and a new across-the-board flat tax rate of 14 percent have brought Slovakia to the attention of many strategic investors, such as Peugeot, Johns Manville, and Whirlpool. Slovakia has experienced an increase in both the number of transactions and capital invested. However, reflecting the regional trend, the growth of new participants in the venture capital and private equity sectors has remained low. Despite these advances, issues of transparency and consistency in the judiciary continue to keep the level of risk for the foreign investor in Slovakia at a significant level.

Slovakia's accession to the EU, in May 2004, will mark the realization of one of its long-term economic and political priorities. Economically, the country experienced real growth of 4 percent, led by foreign trade. Inflation increased to 8.6 percent in 2003, largely as a result of needed price deregulation in the energy and utility sectors. Unemployment plummeted by 4 percent to end the year at 13.75 percent.


The Hungarian-American Enterprise Fund (HAEF) is a $72.5 million investment fund fully funded by its USAID grant. The purpose of the HAEF, established in 1990, is to accelerate the development of Hungary's private commercial sector through the provision equity and loan capital, as well as technical assistance to small and medium-sized enterprises (SMEs). As of September 30, 2003, the HAEF had drawn down all $72.5 million from the grant and had invested about $130 million in Hungarian enterprises.

As of September 30, 2003, the HAEF had concluded its active investment activities and was starting the wind-down of the Fund. It is expected that this process and the sale of its investments will take about three to five years in order to ensure that the maximum return is secured. Similar to the approach taken by the Polish-American Enterprise Fund, the HAEF will return one half of the proceeds from the sale of the Fund to the U.S. Treasury. The other half will go to establish and fund the Hungarian-American Enterprise Scholarship Fund (HAESF). The HAESF will provide yearlong, hands-on professional experiences for young Hungarians in the U.S., as well as post-graduate opportunities for senior Hungarian professionals for applied research in the U.S. This legacy of the HAEF will help to strengthen the relationship between the U.S. and future Hungarian leaders for decades to come.

While the Fund's active investment activities have concluded, it may still make investments to protect the value of the existing HAEF holdings or to meet outstanding commitments. Since it operates as a purely private equity fund, HAEF's final returns will not be known until all of the investments are liquidated. The final proceeds may be significantly more or less than the current book value. A notable example of this principle in action was the sale of Euronet Worldwide, Inc. The HAEF's $2.9 million investment in Euronet returned $21.6 million. It still holds about 120,000 shares and will keep them until market conditions improve enough to warrant their sale.

In 1997, HAEF established a parallel venture capital fund called Hungarian Equity Partners (HEP), LP. With $9.5 million of HAEF capital invested, the Fund has a 19 percent interest in HEP, while EBRD and private investors have the remaining 81 percent, with about $40.0 million invested. So far, the HEP has made nine investments costing $26.8 million.

In 1998, HAEF established the Hungarian Innovative Technology Fund (HITF) as a subsidiary specializing in financing smaller, high-tech start-up companies with global market potential. HITF was capitalized by HAEF at $5 million. HITF has four investments in the areas of computer software and biotechnology.


The Polish-American Enterprise Fund (PAEF) originally received $262 million from the USG. The Fund officially began liquidation in 1999, and in keeping with the agreement with the U.S. Congress, it has returned $120 million to the Treasury and provided $120 million to launch the Polish-American Freedom Foundation (PAFF). Any Subsequent reflows from the PAEF were to be given to the PAFF. Currently, the PAEF has handed over $200 million to the Foundation, and it expects this amount to increase to $235 million when the remaining assets are liquidated.

The PAEF, which has privatized as Polish Enterprise Investors (EI), is now raising its fifth private investment fund for �300 million. When closed, this fund will bring the total of private funds raised by EI to over $1 billion. The EBRD has agreed to invest in 20 percent of the new fund ($60 million), and the majority of the funds will be invested in the Polish economy. The micro-enterprise bank Fundusz Mikro (FM), established by the PAEF as a for-profit foundation, is a successful group lending institution. FM operates 27 branches and employs a total of 90 people. The average loan is $2,500, and to date FM has made over 57,000 loans (30,000 micro loans), and disbursed over $100 million, with a loan loss ratio of 1.5 percent. FM is moving away from its group lending model and now promotes more individual programs, such as the partnership model, working with local banks (average interest rate is 18 percent). The issue of how to incorporate FM, a for-profit company into the PAFF, a non-profit foundation, remains unresolved.

The PAFF, in contrast to the business-related institutions created by the PAEF, is a not-for-profit entity. It makes grants to and exerts its influence through the Polish NGO sector. Since its inception in 1999, the PAFF has made over 50 grants, 20 of which are still active. The grants, which have an average life of 17 months, have totaled over $9 million, and range in size from $245,000 to $700,000 (average $250,000). PAFF's activities now involve 20 programs in four thematic fields: Initiatives in Education; Support for Local Communities; Citizens in a Democratic State of Law; and Sharing the Polish Experience in Transformation.


The Romanian-American Enterprise Fund (RAEF) was established in September 1994. USAID initially capitalized the RAEF with a $50.0 million grant and later added $11.0 million, bringing total obligations to $61.0 million. As of July 31, 2003, the cost of the investment portfolio was $47.16 million, and the Fund's net worth stood at $34.65 million. The Fund's various investment programs are as follows:

Major Transaction Program (MTP):

For the year ending September 30, 2003, the Fund's major investment portfolio had been experiencing some improvement. There has been no change in the negative investment situations with four companies under liquidation. The services sector is improving (better than manufacturing), and the financials are doing well. In November 2003, Banca Romaneasca (76 percent owned by RAEF) was sold to the National Bank of Greece for a cash gain of $10 million. Many of the other equity investments showed zero percent IRRs (Internal Rate of Return). However, the Fund regards these percentages as very conservative and has suggested that their investments, particularly in the financial services sector, manufacturing, and services are going up in value, and expects that in one year, with increased valuations, the IRRs will be more positive.Investments in the MTP 11-company portfolio for the most part remain in poor shape.

Small Loan Program (RO-AM):

Following a management decision in 2001, the Small Loan Program was sold to Banca Romaneasca. Any remaining RO-AM loans not sold to the bank will be maintained by the RAEF. The money received from the investments sold is being recycled into other RAEF programs. Operational between 1997 and 2001, the Small Loan Program disbursed 239 loans in the amount of $13.2 million.

Micro-Loan Program (MLP):

The MLP program, which has been operational since 1996, has demonstrated the capacity to provide financial services that assist the micro-enterprise sector with well-tested methodology. The MLP has improved its operation and procedures and has reached the best quality of loans since the program's inception. In 2001, the MLP became self-sustainable -- revenues covered program expenses, and the program started to earn a profit. CAPA (see below) and OMRO are self-sustainable, and CHF covers its operational expenses from USAID grants. The MLP has made almost 3,900 loans, helped create 6,883 jobs (3,211 for women, and sustained another 21,583 jobs (10,205 for women).

Funding for the MLP is mainly provided by RAEF from its own funds and from attracted sources. Total disbursed by the MLP since its inception is $20.73 million. The three MLP operations are:

  • Project RAEF-CAPA (1996), operates in Cluj, Craiova, Iasi, and Constanta. Total disbursed since inception: $15.63 million; outstanding portfolio, $3.38 million; and portfolio at risk, 2.21 percent.

  • Project RAEF-CHF (1998), operates in Timisoara, Arad, Deva, and Resita. Total disbursed since inception: $3.61 million; outstanding portfolio, $.660 million; and portfolio at risk, 0.77 percent.

  • Project RAEF-OMRO (1999), operates in Targu Mures and Bistrita. Total disbursed since inception: $1.48 million; outstanding portfolio $.400 million; and portfolio at risk, 4.86 percent.
Investment banking:

The RAEF is pioneering the lucrative investment banking field and has developed a corporate finance strategy of offering solutions for foreign investors who are interested in Romanian assets. In the energy field, the Fund is providing merger and acquisition services as a part of various consortia, including firms such as Credit Suisse First Boston, Rothschild, and Deloitte and Touche. It also has provided financial servies to ABB Romania and Banca Romaneasca.

Home Mortgages:

The new mortgage company, re-named Domenia Credit, opened on September 18, 2003, and is positioning itself for both growth and securitization. With initial funding support from USAID/Romania and the Development Credit Authority (DCA), the company now has $5 million in equity ($1 million IFC), and loan agreements are being negotiated with DEG, EBRD (each negotiating secondary purchases of 20 percent in equity), and IFC. Loan funds from international financial institutions of $16 million plus $7 million from Raiffeisen Bank bring the total of debt funds available for the mortgage operation to $23 million.

Domenia Credit currently has 165 loans outstanding, valued at $2.24 million, and total commitments in excess of $23 million. Average home loan value is $16,000, principally in apartments; buyers are young people in Bucharest. Domenia Credit is studying the opening of new offices in Cluj and Timisoara, with others to follow. The new company expects to break even in the second quarter of 2004.

Energy Efficiency Fund (EEF):

The EEF is registered as an LLC under the name Romanian Engery Efficiency Company NV (RIEEC), with RAEF as the sole shareholder. The RIEEC plans to develop an Energy Services Company in Romania and will seek other partners. Currently, five prospective co-generation projects are developing across several industries. It is expected that regulatory issues will be of immediate concern, and RAEF is working closely with USAID to seek solutions to them.