Limited access to medium-term credit has long been a key constraint in the development of Kazakhstan’s small and medium enterprises (SMEs), restraining their ability to exploit investment opportunities, increase employment, and contribute to sustainable growth. To help address this constraint, the Asian Development Bank (ADB), approved in September 2010 a multitranche financing facility (MFF) of $500 million for the Small and Medium Enterprise Investment Program. The investment program was designed to provide a financial intermediation loan, guaranteed by the government, to the Damu Entrepreneurship Development Fund (Damu), to be onlent by participating financial institutions (PFIs) to SMEs. Its expected impact was sustained job creation and economic growth, and intended outcome was increased and sustainable SME access to medium-term credit.
The MFF was structured in three tranches. This report covers tranche 2, approved in October 2014 for a loan of $122 million and closed in November 2016. Relent equally to two PFIs, the Bank Center Credit (BCC) and Tsesnabank (TSB), tranche 2 adopted the MFF’s expected impact and outcome and planned to deliver them through two outputs: (i) medium-term financing to SMEs and (ii) improved financial sector outreach, with a focus on women entrepreneurs. The PFIs were selected based on their commitment to expand SME lending portfolios and compliance to a set of criteria, including the National Bank of Kazakhstan’s prudential limit, profitability, nonperforming loan ratio of less than 10%, capital adequacy ratio (CAR) of at least 12%, and a credit rating of at least B−. Subloan requirements to ensure safeguards compliance, broad geographic outreach, longer loan duration, and gender equality results were also incorporated into the separate project agreements entered by ADB and the PFIs under tranche 2.
Project performance in relation to output targets was mixed. By end-2015, the original loan closing date, 994 SME loans were issued, increasing by the same number the new SME loan accounts that reflected a 67% shortfall in the target 1,500 new SME accounts. Non-delivery of the target was attributable to the PFIs’ focus on large loans. About two years after, the number of subloans reached 2,226, with a total amount of about $153 million. By aggregate principal amount, 49% of the total loans issued had tenor less than 1 year, indicating a significant shortcoming in providing SMEs with medium-term credit, but also reflecting the current dominant practice in the SME sector to source medium- to long-term loans mostly from government subsidized lending programs.
Due to limited experience, the PFIs had problems marketing the subloans to women-led businesses at project startup. Despite this, women entrepreneurs, as of November 2017, represented 32.8% of the total number of borrowers, exceeding the 24% target. But because women subloans were much smaller than those received by men, they made up only 13.1% of the total subloans extended.
Overall, the project succeeded in using credit to finance SME development and address liquidity and currency-related issues but failed to resolve other constraints related to SME access to medium-term credit, including commercial banks’ aversion to SME lending, limited lease finance availability for SMEs, lack of domestic resources for SME medium-term credit, and the high regulatory burden on SMEs. While doing better on job creation than tranche 1, tranche 2 contributed only incrementally to the 500,000 growth in SME jobs between 2013 to 2016. Damu, the Kazakhstan state agency tasked with SME development, was the project executing agency.
