Kyrgyz Republic: Partnering with the Private Sector and Helping Small Businesses Grow
Project Result / Case Study | 21 February 2020
- Partnering with the Private Sector and Helping Small Businesses Grow in Kyrgyz Republic
- Second Investment Climate Improvement Program thas included help for the government in constructing the policy, legal, and financial framework needed to encourage, negotiate, and close agreements for PPPs.
- The ADF-funded Second Investment Climate Improvement Program in the Kyrgyz Republic also set up a credit guarantee fund for SMEs.
The Kyrgyz Republic’s development issues are not uncommon in the ADF countries. It relies heavily on its natural resources and on remittances from too many citizens forced to find better work and pay abroad. It needs to ensure decent affordable health care and other basic services but often lacks the public sector means or know-how to do so.
Diversifying economies, creating new jobs, and delivering frontline public goods and services are all areas in which the private sector can play a potent role. Recognizing this, the republic’s government has made development of the private sector—a major driver of growth—a prime goal.
The ADF’s support in this effort has come mainly through ADB’s ongoing Second Investment Climate Improvement Program. The program has included help for the government in constructing the policy, legal, and financial framework needed to encourage, negotiate, and close agreements for sound PPPs. The program’s current third phase is being financed by a $25 million ADF grant.
“PPPs open new possibilities, because the private sector is able to buy new technologies and practices and bring them in from other countries.”
Hanchoro Murzaliev, head of investment policy at the Ministry of Economy, calls ADB’s contribution to PPP development “huge,” and the PPP framework the partnership has created “among the best in our wider region.”
He particularly likes the hi-tech and rapid modernization advantages generated by private sector involvement in service delivery. “PPPs open new possibilities, because the private sector is able to buy new technologies and practices and bring them in from other countries.”
The framework and further reforms facilitated by the program paved the way for pilot PPP projects that have almost instantly upgraded the quality of an important medical procedure in the country while also bringing down the costs.
Hemodialysis centers opened in 2018 in the Bishkek, Jalal-Abad, and Osh regions. Developed with International Finance Corporation support as the DMC’s first PPPs, they have introduced up-to-date equipment and filtration methods for the treatment of patients with kidney diseases.
“This milestone was achieved using the ADB program’s policy matrix,” says Mederbek Ismailov, who heads the Strategic Planning Department at the Ministry of Health. “The program helped make these projects happen.”
Success has led to 18 new private dialysis center start-ups across the country. “There’s now a wider range of quality services,” says Mederbek, “and more competition has lowered prices for hemodialysis services nationally by about 25%.”
“We wouldn’t have seen anything like this growth and development without ADB’s financial and technical assistance at the start””
The ADF-funded Second Investment Climate Improvement Program in the Kyrgyz Republic also set up a credit guarantee fund for SMEs. These small and mid-scale growth dynamos already accounted for two-fifths of the country’s gross domestic product but were running out of the financing needed to continue to contribute to growth and job creation.
Edil Jarbolov and his wife, who raised horses for 20 years, are part of a special breed themselves. Entrepreneurs who start small and build from there have helped drive economic growth worldwide for centuries, including the spectacular expansions in many of ADB DMCs over recent decades.
The Guarantee Fund, set up under the program with a $3 million ADF grant, had as of June 2019 guaranteed 893 bank loans totaling $57 million to SMEs whose businesses would otherwise have stalled because of their inability to meet stiff collateral requirements or afford the high interest rates.
More than one-quarter of the guarantees have gone to women-owned and -led SMEs, and threequarters of the loans went to SMEs outside the capital, Bishkek. The fund’s capital has quadrupled to $16.5 million since inception.
“We wouldn’t have seen anything like this growth and development without ADB’s financial and technical assistance at the start,” says Malik-Aidar Abakirov, chair of the fund’s board. “The fund’s success is also attracting interest from other countries. Tajikistan authorities are looking at creating the same model, with the first guarantees expected to become available to Tajik SMEs by late 2019.”
When the Jarbolovs had a new idea, the fund was there to help. They had always raised a few cows on their Chuy Region farm and sold excess milk, but by 2015 the rising profits from these sideline sales had become too hard to ignore. They decided that dairy farming was the way to a bigger business and better future. By 2018, they had 50 cows.
“I’d made do with old equipment until then,” says Edil, 52, “and a cooling tank I’d made myself. But it wasn’t keeping the milk fresh enough, and buyers were sometimes rejecting it.”
The Jarbolovs lacked collateral, but the Guarantee Fund accepted an application, and a fund-insured bank loan bought the state-of-the-art dairy equipment the business needed to move forward.
“Production has doubled to about 1,800 liters a day,” Edil says. “Sales are up threefold to about Som44,000 ($630) a day, half of which is profit.”
Next steps are to repay the loan, which Edil believes will be easy now, and finance the children’s education—as well as think about buying another 100 cows.
Learn more about the Asian Development Fund (ADF).
This article was originally published in Together We Deliver, a publication highlighting successful ADB projects across Asia and the Pacific that demonstrated development impacts, best practice, and innovation.