Ukraine—Financial Sector Transformation (FST)

After years of oligarchic control, the closing of more than 70 banks, and a threefold currency devaluation, the Ukrainian financial sector in 2016 was extremely fragile. On the commercial side, pressures curtailed the growth of small and medium enterprises (SMEs) by making financing less accessible and driving prohibitively high interest rates. Meanwhile, consumers lost both money and trust in the banking system after the 2009 financial crisis, opting out of using banks altogether and converting their salaries directly to cash on payday. Continued strains such as these brought the country’s financial sector dangerously close to the point of collapse.

Despite these challenges, reformers within the Ukrainian Parliament and key regulatory bodies looked to pass new financial sector legislation that will uphold transparency and accountability, protect businesses and consumers, and confront fraud and abuse, thereby restoring public confidence in the financial system. To capitalize on this momentum, the U.S. Agency for International Development launched the Financial Sector Transformation (FST) Activity to support efforts to reform Ukraine’s nonbank financial institutions. FST provided flexible and market-focused technical expertise to boost the involvement of consumers and businesses in shaping the reform process, while also working with policymakers to influence the legal changes needed to enable effective and long-lasting change.

At the heart of FST was DAI’s market systems approach to inclusive financial sector programming, which addresses both demand- and supply-side actors and seeks to improve the wider business enabling environment of the financial sector. By increasing competition within the financial system and broadening service offerings, in particular to meet the needs of women and low-income and marginalized populations, FST helped ensure the benefits of new financial reforms are felt by all Ukrainians.

Sample Activities

• Support the development and passage of new legislation that addresses consumer protection and ensures that consumer rights are in place for nonbank financial services.
• Partner with local nongovernmental organizations and universities to expand financial literacy among marginalized and hard-to-reach populations by developing educational materials, tools, games, and apps that address new consumer rights and protection laws.
• Collaborate with leasing and credit union associations to raise awareness of critical business constraints caused by policy and taxation issues, and put forth legislation to facilitate reforms.
• Support the establishment of a diaspora fund to attract diaspora investment and facilitate access to financing ready SMEs.

Select Results

• Conducted Financial Awareness Days with partners—including the National Bank of Ukraine, VISA, the Deposit Guarantee Fund of Ukraine, Independent Association of Ukrainian Banks, the Banking University, and the Securities and Stock Market National Commission—featuring multiple workshops and lecture sessions for teachers and university professors, high school and university students, business people, vulnerable groups, and the general public. The event attracted more than 10,000 individuals.
• Developed a national Financial Empowerment training program for vulnerable populations (internally displaced persons, pensioners, orphans) implemented in partnership with the Ukrainian Women’s Fund.
• Implemented a financial literacy course for schoolchildren that is now taught in more than 1,000 schools nationwide to 41,000 students.
• Supported the creation of the Base Erosion and Profit Shifting (BEPS law), which removes gaps in international tax regulation that allow companies to “conceal” their profits and avoid or minimize taxation by moving them into low-tax countries, and the Anti-Money Laundering law, which introduces a new risk-based approach to combat money laundering, increases penalties and executive discretion to level fines and open investigations.