Cyprus is moving ahead with plans to establish its first public development finance institution after parliament approved legislation creating the Cyprus Business Development Organisation.

Its primary objective is to improve access to capital for small and medium-sized enterprises (SMEs), startups and self-employed professionals that struggle to secure financing on commercial terms.

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A New Financing Channel For Smaller Businesses

Operations are expected to begin within 12 to 18 months. Once launched, the organisation will become Cyprus’ first dedicated public development finance institution focused on supporting smaller businesses that face barriers to conventional bank lending.

Before that happens, authorities are expected to appoint a seven-member board next month. Members will serve in a transitional capacity for two years while the institution develops its lending programmes, financing tools and operational framework.

Designed To Complement, Not Compete With Banks

Rather than competing with commercial lenders, the institution is intended to address financing gaps left by the private sector, particularly for businesses with limited collateral, short operating histories or higher-risk profiles.

Its mandate includes providing loans, guarantees and other financial instruments where private financing is unavailable or insufficient.

Under the legislation, the organisation will also be authorised to design financing schemes, conduct market studies and identify gaps in Cyprus’ funding ecosystem to help guide future support programmes.

Broader Ambitions Beyond Credit

Beyond improving access to finance, the institution is expected to support entrepreneurship, strengthen competitiveness and encourage investment in innovation, digital transformation and the green transition.

Initial funding will include €60 million in state capital. Additional financing may come from the organisation’s own operations, borrowing from European and international financial institutions and, where approved, state guarantees.

How It Compares With European Models

Although its final role will become clearer once operations begin, the Cyprus Business Development Organisation appears to draw inspiration from established development finance institutions elsewhere in Europe.

At EU level, its closest functional parallels include the European Investment Fund, which uses guarantees, equity investments and risk-sharing mechanisms to improve access to finance for SMEs and innovative firms. It also echoes aspects of the European Investment Bank and its guarantee programmes, which are designed to encourage additional lending by reducing risk for financial institutions.

National comparators include Germany’s KfW and the British Business Bank, both of which use public-backed lending and guarantees to improve financing conditions for smaller companies.

Cyprus’ model appears ambitious in one respect: it aims to combine lending, guarantees, potential equity-style support and market analysis within a single institution. If implemented effectively, that could give the country a more integrated development finance framework than is common in larger economies, where such functions are often spread across multiple agencies.

Legislative Safeguards And Governance Rules

Cyprus’ House of Representatives unanimously approved the legislation establishing the organisation. Lawmakers also adopted an amendment requiring that the criteria for loans and guarantees be set through regulations approved by parliament.

During parliamentary scrutiny, legislators rejected several proposed amendments, including a proposal to cap financing for medium-sized enterprises at 20% of the organisation’s total portfolio. Meanwhile, the Finance Ministry revised the draft legislation to incorporate comments from MPs and stakeholders.

Changes to the final text included removing provisions that would have allowed the organisation to establish companies or acquire additional powers through secondary legislation. Eligibility was also narrowed by excluding small mid-cap companies.

Further governance safeguards were introduced through stricter suitability requirements for board members, enhanced conflict-of-interest provisions and a ban on politically exposed persons and public officials serving on the board.

Additional requirements include consultation with the State Aid Commissioner before financing schemes are introduced, annual reporting to parliament, performance indicators and borrowing limits. Oversight will be shared between the Finance Minister, who will supervise the organisation, and the Central Bank of Cyprus (CBC), which will oversee anti-money laundering compliance.

A Key Milestone In Cyprus’ Recovery Plan

Creation of the organisation is also linked to Cyprus’ Recovery and Resilience Plan, making it one of the final milestones required before the country receives the plan’s ninth and final payment.

The legislation has been welcomed by the Cyprus Chamber of Commerce and Industry (Keve), which described it as “a substantial reform for the Cypriot economy.”

According to Keve, the new institution could help address longstanding financing gaps, strengthen competitiveness, support entrepreneurship and accelerate innovation alongside Cyprus’ digital and green transition.

The chamber also pointed to the country’s continued reliance on bank lending, saying it has limited businesses’ access to capital for investment, expansion and innovation.

“Businesses’ heavy reliance on the banking system has restricted access to capital for investment, expansion and innovation,”

Keve said.

Keve added that it had contributed throughout the consultation process and would continue working with the Finance Ministry and the organisation’s future leadership to help ensure the institution becomes an effective development tool for the economy.