Kazakhstan: Small and Medium Enterprises Investment Program - Tranche 2

Sovereign Project | 44060-024 Status: Approved

Summary

ADB is helping Kazakhstan provide affordable financing to small and medium-sized enterprises (SMEs). The second tranche of the multitranche financing facility will help state-owned Damu Entrepreneurship Development Fund provide medium-term financing to SMEs through local banks. It will also help promote greater access to credit for women entrepreneurs.

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Procurement Documents

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Project Name Small and Medium Enterprises Investment Program - Tranche 2
Project Number 44060-024
Country Kazakhstan
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3093-KAZ: Small and Medium Enterprises Investment Program - Tranche 2
Ordinary capital resources US$ 122.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Private sector development
Sector / Subsector

Finance - Small and medium enterprise finance and leasing

Gender Equity and Mainstreaming Effective gender mainstreaming
Description This is the second Tranche of a Multitranche financing facility (of $500 million) to support SME lending. Tranche 2 is funded through a loan to Damu ($150 million equivalent in local currency) from ADB's ordinary capital resources, guaranteed by the Republic of Kazakhstan. Tranche 2 is supporting Damu implement the government's Action Plan to increase access to medium term finance for SMEs. ADB's loan is used for lending to qualified SMEs through selected participating financial institutions (2 commercial banks).
Project Rationale and Linkage to Country/Regional Strategy

A prosperous SME sector is a major creator of employment and innovation. SMEs in Kazakhstan are more responsive and adaptable than larger enterprises and are ultimately a key to the country''s long-term economic growth and poverty reduction. A number of government initiatives have been taken to address the barriers faced by SMEs including the state Roadmap for Business 2020 and the Accelerated Industrial-Innovative Development of Kazakhstan. With a narrowly based economy concentrated on extractive industries, the goal is to diversify the production base and give prominence to development of the SME sector, in particular its expansion and diversification.

Access to finance for SMEs is a key constraint for growth. The project is increasing the supply of long term SME credit.

Impact

Project Outcome

Description of Outcome SMEs have increased access to medium term credit on a sustainable basis
Progress Toward Outcome The mid-term review mission confirmed that market conditions for lending to SMEs tightened in late 2014 and during 2015. Economic growth in the first half of 2015 is estimated to have slowed from 3.9% a year earlier to 1.7%, its slowest rate since 2009. This comes as a result of lower external demand and oil prices. Both private consumption and domestic investment have been severely impacted, despite the government's stimulus package. On 20 August 2015, the National Bank of Kazakhstan adopted a freely floating exchange rate regime, abandoning its earlier narrow currency band linked to the US dollar. As a result, the local currency depreciated by more than 21% in the first three quarters of the year, an even larger decline than the 16% devaluation in February 2014. The currency value has continued dropping, with over 50% depreciation in the second half of 2015. The assessment of the financial situation of Kazakh banks has to take into account lower growth and the sharp currency depreciation. Many Kazakh banks hedged their position against a tenge depreciation and, as a result, recorded some windfall profits for the second half of 2015. However, the depreciation effects impact on the borrowers' business activities and balance sheets, deteriorating the quality of the portfolio of Kazakh banks. FInancial dollarization is high and increasing. Nonperforming loans (NPLs) over total loans decreased in 2014 and 2015, supported by NFRK-funded vehicles to recapitalise weak banks and acquire legacy NPLs, and went from 23.5% at the end of 2014 to 10% in 2015. The currency devaluation will deteriorate the quality of the banking sector portfolios in 2016.
Implementation Progress
Description of Project Outputs

1. Medium-term financing to SMEs

2. Improved financial sector outreach, with a focus on women entrepreneurs

Status of Implementation Progress (Outputs, Activities, and Issues) As of 31 December 2015, the funds had been fully disbursed to SME subborrowers (US$122 million). As of 31 December 2015, the PFIs had disbursed T27,642,008,650 to 353 SME borrowers through 995 loans. The share of women SMEs was 35% of the total no. of borrowers and 28% (280 loans by women SMEs) of the total number of loans.
Geographical Location Kazakhstan

Safeguard Categories

Environment FI
Involuntary Resettlement FI-C
Indigenous Peoples FI-C

Summary of Environmental and Social Aspects

Environmental Aspects The project has been categorized as FI in accordance with ADB s Safeguard Policy Statement (2009). Safeguards due diligence has been conducted to assess potential environmental and social risks and impacts associated with qualified PFI s likely future portfolios, along with their commitment and capacity for environmental management. Tranche 2 under the MFF will be treated as Category B for environment safeguard components based on ADB s Safeguard Policy Statement (SPS), 2009. Damu and each of the PFIs will have in place or establish an ESMS to be maintained as part of its overall management system to meet Kazakhstan national laws and norms and ADB s safeguards requirements. Each PFI that receives proceeds of a loan under the Facility is required to submit to ADB: (i) a copy of its ESMS to be used in implementing this loan for ADB approval prior to submitting its first withdrawal application; and (ii) asemi-annual report on its compliance with its ESMS. The PFIs will prepare and submit semi-annual environmental monitoring reports on the implementation status of their ESMS to ADB.
Involuntary Resettlement For involuntary resettlement, tranche 2 is treated as C, unlikely to generage impacts on involuntary land acquisition, and resettlement.
Indigenous Peoples Tranche 2 is treated as C, unlikely to generate impacts on indigenous peoples.
Stakeholder Communication, Participation, and Consultation
During Project Design The European Bank for Reconstruction and Development, International Finance Corporation, United States Agency for International Development and the World Bank have supported SME development in Kazakhstan through (i) capacity building to improve operations, enter new markets and access finance; (ii) training to nongovernment organization business service providers; (iii) technical assistance to help banks introduce credit scoring and improve SME lending policies; and (iv) FILs to and equity investments in banks that provide loans to SMEs. ADB has worked closely with these partners, mindful of lessons on the need to mitigate foreign exchange and tenor mismatch risk, the importance of developing the local bond markets, and issues related to PFI ownership and control.
During Project Implementation During the project implementation ADB will keep close consultation with the active development partners (EBRD, USAID, World Bank etc.) to keep abreast on the development of Kazakhstan's financial and SME sectors, local bond markets, and on issues related to PFI ownership and control.

Business Opportunities

Consulting Services There is no procurement of services under Tranche 2
Procurement There is no procurement of goods and works under Tranche 2

Responsible Staff

Responsible ADB Officer Inmaculada Martinez Martin
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
DAMU Entrepreneurship Development Fund
BMUKUSHEV@FUND.KZ
Gogol St., 111, Almaty Kazakhstan

Timetable

Concept Clearance -
Fact Finding -
MRM 18 Oct 2013
Approval 13 Dec 2013
Last Review Mission -
Last PDS Update 30 Mar 2016

Loan 3093-KAZ

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
13 Dec 2013 29 Oct 2014 25 Nov 2014 28 Dec 2015 28 Jun 2016 -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 122.00 Cumulative Contract Awards
ADB 122.00 13 Dec 2013 0.00 0.00 0%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 13 Dec 2013 122.00 0.00 100%

Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

Evaluation Documents See also: Independent Evaluation

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Related Publications

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