Kazakhstan: Developing Rural Financial Intermediation

Sovereign Project | 52293-001

Strategic context. The proposed knowledge and support technical assistance (KSTA) will support Agrarian Credit Corporation (ACC) to improve access to finance for agriculture sector entities (ASEs) and households in rural and remote areas. ACC is the key rural financial intermediation institution in Kazakhstan and is a subsidiary of KazAgro National Management Holding Joint Stock Company (JSC) (KazAgro).

Project Details

  • Project Officer
    Galiyev, Arystan
    Central and West Asia Department
    Request for information
  • Country/Economy
    Kazakhstan
  • Sector
    • Finance
Project Name Developing Rural Financial Intermediation
Project Number 52293-001
Country / Economy Kazakhstan
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 9650-KAZ: Developing Rural Financial Intermediation
Financial Sector Development Partnership Special Fund US$ 225,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Agriculture, natural resources and rural development / Agro-industry, marketing, and trade

Finance / Inclusive finance - Small and medium enterprise finance and leasing

Gender Equity and Mainstreaming Some gender elements
Description

Strategic context. The proposed knowledge and support technical assistance (KSTA) will support Agrarian Credit Corporation (ACC) to improve access to finance for agriculture sector entities (ASEs) and households in rural and remote areas. ACC is the key rural financial intermediation institution in Kazakhstan and is a subsidiary of KazAgro National Management Holding Joint Stock Company (JSC) (KazAgro).

The TA will assist ACC to implement its recently adopted long-term development strategy for 2017 2026 through (i) developing a comprehensive and actionable business plan, (ii) improving corporate governance, (iii) strengthening the institutional capacity, (iv) developing its environmental and social management system, and (v) providing expertise for strengthening credit unions and financial organizations in rural areas. The TA will review ACC's key business activities to prepare its business plan, including a comprehensive financial model with 5-year projections and a cost-benefit analysis, which will determine the company's vision and strategy in terms of operational focus areas, target clients, geographical outreach, product focus, and funding requirements. The TA will strengthen ACC's capacity to mobilize external finance, and to develop into a wholesale financial intermediary. The TA will also review the ongoing lending programs of some of the second-tier banks and provide recommendations on how to meet ASEs' needs for finance.

The Asian Development Bank (ADB) country partnership strategy (CPS), 2017 2021, for Kazakhstan prioritizes, among others, a nexus of access to finance and inclusive growth addressing the availability of finance in rural and remote areas under its interconnected strategic pillars. The TA is included in ADB country operations business plan, 2019 2021 for Kazakhstan.

Project Rationale and Linkage to Country/Regional Strategy

Rationale. Limited access to finance is one of the major challenges faced by companies in the country. A key constraint to credit is an underperforming financial sector that insufficiently responds to the needs of the private sector, especially of the agriculture sector outside Almaty and Astana cities. Furthermore, an increasing vulnerability of the financial sector complicates the access to finance. Major issues include: (i) insufficient bank lending mainly caused by a large stock of non-performing loans, (ii) absence of basic financial services in remote areas, (iii) ASEs' poor financial condition and inability to provide movable collateral, (iv) poor financial literacy and information asymmetry across the industry, and (v) outdated information and communication technology and inadequate level of digitalization of the banking sector.

Most ASEs are in remote rural areas, which are heavily vulnerable to external shocks. Micro, small and medium sized agribusiness entities are major source of income for local entrepreneurs and households, including women entrepreneurs. To date, credit unions (CUs) are the only existing source of finance for local agribusiness entities in remote areas, indicating the ASEs' limited access to finance. At the same time, ACC is the only source of lending for approximately 200 agriculture CUs.

However, the current business model of CUs is suboptimal due to: (i) sole dependence on the ACC funding that depletes quickly, given existing demand and its inflexibility associated with bureaucratic procedures and improper timing when needed by recipients; (ii) inability of re-allocation of funds among those CUs that require immediate financing; and (iii) limited ability of CUs to establish their own funding basis through cash/savings operations, accepting deposits and additional contributions from CUs' members, as these activities require corresponding licenses from the National Bank of Kazakhstan, which is difficult and time-consuming.

Consultations with the Ministry of Agriculture (MoA), KazAgro and ACC all confirmed the importance of expanded rural financial intermediation and support to credit unions as key development objectives, reflected in ACC's development strategy for 2017 2026. In this regard, the MoA is a policy regulator committed to improving agricultural sector performance; KazAgro is a national company responsible for implementing policy and state support to the sector; and ACC is financial intermediation arm of KazAgro, working directly with ASEs.

Impact Accessible and effective system of agriculture financing that supports economic growth.
Project Outcome
Description of Outcome Broadened access to finance for ASEs in rural areas.
Progress Toward Outcome
Implementation Progress
Description of Project Outputs 1. Improved business processes of ACC.
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Responsible ADB Officer Galiyev, Arystan
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Kazakhstan Resident Mission
Executing Agencies
Asian Development Bank
6 ADB Avenue,
Mandaluyong City 1550, Philippines
Ministry of National Economy
Orynbor str., 8, House of Ministries, entr.7,010000 Astana, Kazakhstan
Timetable
Concept Clearance 07 Nov 2018
Fact Finding 18 Sep 2018 to 18 Sep 2018
MRM -
Approval 25 Sep 2018
Last Review Mission -
Last PDS Update 08 Nov 2018

TA 9650-KAZ

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
25 Sep 2018 - 25 Sep 2018 30 Jun 2020 30 Jun 2022 18 Apr 2022
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
225,000.00 0.00 0.00 0.00 0.00 0.00 225,000.00 01 Aug 2022 100,851.91

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Evaluation Documents See also: Independent Evaluation

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Related Publications

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Tenders

Tender Title Type Status Posting Date Deadline
Environmental and Social Management System Specialist Individual - Consulting Closed 24 Jun 2020 07 Jul 2020
Corporate governance and risk assessment Individual - Consulting Closed 14 May 2019 20 May 2019
Organization Management & Strategy Development Individual - Consulting Closed 21 Feb 2019 27 Feb 2019
Organization Management & Strategy Development Individual - Consulting Closed 21 Feb 2019 27 Feb 2019
Corporate governance and risk assessment Individual - Consulting Closed 21 Feb 2019 27 Feb 2019

Contracts Awarded

No contracts awarded for this project were found


Procurement Plan

None currently available.