By the end of the year the government will be ready to extend the first low-interest and interest-free microloans, Labour and Social Policy Minister Lidia Shuleva announced last Thursday, after the Cabinet approved a microcredit guarantee plan.

Providing a low-interest microlending program for small and medium-sized enterprises was one of the major campaign promises of the ruling National Movement Simeon II (NMSII) in June.

In the 2002 budget, 86 million leva have been allocated for active labour market policies. Of this amount, 20 million leva will be allotted as starting capital of a microcredit guarantee fund. The fund will completely cover the interest of loans given out to socially disadvantaged borrowers. Interest rates are expected to be about 10 per cent.

Practically all the loans will be recoverable since the fund will provide security of 70-100 per cent of the credits. Either fixed assets of borrowers or those that they plan to buy will also be used as security.

The loan repayment terms will range between one and five years, depending on the credit package. Three types of microcredits for amounts between 5,000 and 15,000 leva will be offered: for working capital, for investment, and mixed, where 75 per cent of the money should be spent on investment, and the remainder for operation capital.

Priority will be given to applicants who own or are about to establish micro-enterprises, as well as to agricultural producers, craftsmen, people who have been jobless for more than a year, unemployed aged between 20 and 29, unemployed from an ethnic minority, jobless women and unemployed disabled people.

The microlending project will be launched in 10 pilot municipalities selected according to criteria such as unemployment rate, number of unemployed competing for a job opening, percentage of disabled unemployed and unemployed aged under 29.

Five such municipalities - Vidin, Vratsa, Silistra, Targovishte and Razgrad - are already under consideration. The guarantee fund's governing board, which is to be elected shortly, will have to approve the participating regions. Next year the project will expand to include the whole country.