|Project Rationale and Linkage to Country/Regional Strategy
1. Poverty remains high in the Kyrgyz Republic, especially in the rural areas and small towns that account for about 80% of the population (of which 51% is female). Around 33% of the total population lives below the poverty line. The two southern oblasts of Jalal-Abad and Osh are the most populous, and they are home to 56% of the poor. After the Kyrgyz Republic gained independence in 1991, many women lost their jobs in the formal sector (more than 80% had been employed by cooperatives or state farms). They moved into the lower paid informal sectors and turned to subsistence farming and small-scale activities like trade or handicrafts. While two ADB projects, both completed in 2010, helped generate livelihood opportunities by supporting 2,300 female entrepreneurs, most businesses remain very small. Moreover, limited availability of microfinance (generally in the range of $500-$1,500) provides little opportunity for turning self-employment into sustainable small businesses that generate jobs in rural areas. Therefore, there is a need to address cross-cutting women's microentrepreneurship development issues. The new project is designed based on an analysis of achievements, shortcomings, and lessons learned from the two aforementioned projects, namely, (i) continued capacity building of women microentrepreneurs is a prerequisite for any project; (ii) stronger networking and information sharing through marketing channels, resource centers, or other organized women's groups is an important thrust for empowering women entrepreneurs; and (iii) lack of financing to address the needs of women microentrepreneurs and their inability to seek such financing impede small microenterprises' viability and sustainability.
2. In the Kyrgyz Republic, there are more than 600 active microfinance institutions (MFIs), which provide micro-loans to around 9% of the population. More than 70% of micro-loan borrowers are women, indicating that their access to other forms of credit is difficult. Based upon the loan portfolios data of major MFIs, most of these women are returning customers. However, these loans provide limited opportunities for poverty-reducing job creation. Current lending activities in the microfinance sector are focused on group lending and lending on limited assets with very short payback periods and high interest rates (on average over 35% per annum or higher). This is not necessarily sufficient to support enhancement of microenterprises owned or managed by women. Because such limited access is undermining their potential, there is a need to address demand for financial services by women microentrepreneurs with potential for developing into sustainable businesses. The project will help improve the services of MFIs to women microentrepreneurs through (i) expanding outreach and capacity to support women borrowers; and (ii) financing, on a pilot basis, of new financial services enhancing the viability and sustainability of women's microenterprises and with potential for wide-scale replication by PFIs.
3. Furthermore, affordable credit alone will not help women entrepreneurs to grow. It must be accompanied by adequate and sensitively designed training and capacity building and advisory programs. As evidenced by various studies (footnote 1), lack of capacity, experience, and information form a major barrier to increased use of financial services especially among rural women microentrepreneurs. The needs to foster improved capacity for both lenders and borrowers, including through improved marketing and sales on the part of lenders coupled with more efficient credit analysis of loan applications, as well as improved ability to evaluate the economic benefits of borrowed money on the part of women entrepreneurs, have been posed as the greatest challenges. The need for better information between and among lenders and borrowers, including improved explanation of loan terms and improved means of evaluating loan proposals on the part of women microentrepreneurs, constrain scaling up of lending activities. Traditional gender role expectations limit women's activities and education, and women entering micro-businesses tend to stay in traditional sectors and are forced also to keep up with their family responsibilities. Therefore, the project will address this through capacity building on leadership and communication, financial literacy, and business development by means of training and advisory services for women microentrepreneurs with growth potential who are willing to scale up to a formal and sustainable level. Moreover, public awareness campaign activities will aim to improve access to information on the microcredit market.
4. Expansion of women's enterprises has also come up against limitations of the regulatory frameworks and a lack of networks in place to service their production and distribution needs. Women microentrepreneurs' limited access to finance is compounded by their having lower sales volumes, less capital, less collateral, and weaker business skills and experience compared to male-owned businesses. There is also a growing realization that MFIs involved in promoting women's entrepreneurship should more aggressively develop strategies and policies to mainstream gender and social issues and approaches in business development. There is a need to expand policies on collateral and the variety of lending instruments in order to address the needs of different types of micro-businesses. Therefore, the project will support efforts to institutionalize gender-focused and socially oriented policies and programs for microfinance both in PFIs during the project and at a policy level through the Investment Climate Improvement Program.
5. The primary beneficiaries of the project will include, but not be limited to, low-income women microentrepreneurs who are willing to scale up to formal and sustainable level and that (i) are majority owned (more than 50%) or managed by women, with minimum income of 0 to $2,000 per annum; (ii) have a sound business development plan or are willing to develop one in future; (iii) invest into business development not less than 10% of annual profit or are willing to do so in future; (iv) plan to employ in future or employ currently at least 1 non-family member. This will also include (i) recipients of financing from the two previous ADB projects (footnote 11), and (ii) eligible women beneficiaries of micro-loans selected from the PFIs databases. In cooperation with three PFIs, the project will pilot innovative financial services which should improve access to finance and reduce the cost of funds through alternative financing schemes. This, in turn, will improve productivity and efficiency of women's microenterprises. The step up to higher productivity brings important benefits to the entrepreneur and, thereby, to her community. Women running microenterprises are often the primary sources of food security, health care and education for children, and all critical social development needs. Active participation of PFIs, along with active involvement of the government and other stakeholders, in promoting women's microentrepreneurship will help to create more jobs and income, and thereby to improve living standards among the population of the rural areas and small towns in the Kyrgyz Republic.
6. Taking into account the relative short life of the project and the need for further longer-term support of women microentrepreneurs' needs, the government will develop within 3 years from the project start, as part of an exit strategy, a proposal agreed with ADB and the Government of Japan via the Office of Cofinancing Operations for the development and operation of a new facility to promote women's microentrepreneurship. The subgrants made available to the PFIs for financing pilot projects through a standby credit guarantee facility or revolving fund will be returned to the government's separate