MANILA, PHILIPPINES - Kazakhstan's small- and medium-sized enterprises (SMEs) will receive additional medium-term financing from local banks for their much-needed investments, through the support of a $500 million equivalent facility from the Asian Development Bank (ADB).
The ADB's Board of Directors has approved a multitranche financing facility for the Small and Medium Enterprise Investment Program, which aims to help Kazakhstan broaden its economy and provide new jobs through the SME sector.
Under the program, the state-owned Damu Entrepreneurship Development Fund (Damu) will borrow medium-term, fixed-rate Tenge from ADB with government guarantee, for relending to participating banks in Kazakhstan. This will help the banks access cost-effective funding which they need to make market-based loans to their SME clients.
"The program is designed to fill a gap in the market for medium-term, local currency-denominated finance. It will allow participating banks to extend more affordable credit to SMEs with much longer terms so that they can purchase equipment using newer technology and make other investments needed to increase their competitiveness and stimulate job creation," said Juan Miranda, Director General for ADB's Central and West Asia Department.
The government is concerned about the economy being highly concentrated on the oil and gas sector and views SMEs as a key engine of economic diversification and growth to create jobs. The program is a direct response to the global financial crisis and its aftershocks which weakened the financial health of the banking sector and made it difficult for many Kazakh banks to raise funds to support the growth of their SME portfolios.
"This is ADB's first local currency sovereign loan. It is designed to eliminate foreign exchange and interest rate mismatch risks for participating banks and SME borrowers. It will also help banks better manage their liquidity by providing committed funding that has the same, if not longer tenor, as the medium term loans they will make to SMEs." Mr. Miranda also said.
The government and ADB have agreed that under the program the first tranche loan to Damu will be for the equivalent of $150 million, which ADB will raise through cross-currency swaps with international banks. A grant of $650,000 from ADB's Technical Assistance Special Fund will be extended to help Damu roll out the new market based lending program.