Financing SMEs and Entrepreneurs 2020

25. Kazakhstan

Key facts on SME financing

In 2018, SMEs made up 96.7% of all businesses in Kazakhstan. The share of people employed by SMEs was 37.5% of the total employed population. SMEs contributed 28.9% to the country’s GDP that same year (according to preliminary data for 9 months of 2018).

SME lending was on the rise in Kazakhstan since 2014 up to 2017. In 2017-2018 the SME loan portfolio has decreased. In 2018 the SME loan portfolio has decreased by 15.2%, at the same time, new lending to SMEs (over the period) increased by 14.0% over the last year. Due to the fact that the portfolio of loans to SMEs decreased, the share of loans to SMEs in the total portfolio of business loans also decreased to 28.3%. Despite the growth of new lending to SMEs (for the period), their share in the total amount of new business lending decreased to 18.5%. This indicates the growth of new lending (for the period) to large enterprises.

Interest rates for SMEs have fluctuated over the reference period, growing steadily from a record low of 11.5% in 2014 to 14.0% in 2016. In 2018, the rate was 12.7%, while that of large enterprises was 11.2%.

Among non-bank sources of finance, leasing has the largest market and is steadily growing. In 2018, leasing and hire purchases were almost 4.6 times their 2010 level.

Non-performing loans with arrears of more than 90 days (NPL) in banks’ portfolio among both total business loans and SME loans decreased in 2018 to 7.4% and 9.3% respectively. Commercial banks fulfil requirements of the National Bank of Kazakhstan concerning maximum appropriate NPL level of no more than 10% of the total loan portfolio.

An important role in maintaining SMEs’ access to lending is played by the state, which places funds in commercial banks to provide concessional lending to SMEs during shortages of liquidity in the market. The largest placement of state funds for SME lending took place in 2018. The main part of loans was allocated in 2014-2016 to support SMEs in the manufacturing industry at a rate of 6% per annum, which are issued by banks on a revolving basis. Despite the fact that the largest part of the funds was allocated in 2014-2016, these funds are still used for lending to SMEs on a revolving basis. In addition, the State allocates new funds annually.

Since 2010, the government, through “Damu” Entrepreneurship Development Fund, has provided subsidised interest rate expense and loan guarantees for SMEs under the “Business Roadmap 2020” Programme. A new financial instrument in Kazakhstan, loan guarantees are becoming popular very quickly, escalating from just three guarantees in 2010 to 4 853 at the beginning of 2019.

Table 25.1. Scoreboard for Kazakhstan

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs	KZT billion	1 508	1 571	1 708	1 389	1 341	1 412	1 283	1 788	2 060	3 105	2 789	2 364
Outstanding business loans, total	KZT billion	5 220	5 605	5 879	5 892	6 849	7 534	8 110	8 532	9 027	9 234	8 568	8 348
Share of SME outstanding loans	% of total outstanding business loans	28.89	28.02	29.06	23.58	19.58	18.74	15.83	20.95	22.83	33.62	32.55	28.32
New business lending, total	KZT billion	7 764	5 373	3 742	3 291	4 795	5 774	6 109	8 044	7 345	7 724	7 615	9 412
New business lending, SMEs	KZT billion	1 870	1 273	753.10	690 .15	794 .48	1 050	889 .71	1 198	1 279	1 984	1 524	1 737
Share of new SME lending	% of total new lending	24.08	23.70	20.13	20.97	16.57	18.18	14.56	14.90	17.41	25.68	20.02	18.46
Short-term loans, SMEs	KZT billion	296	298	236	206	219	277	199	392	390	826	411	366
Long-term loans, SMEs	KZT billion	1 211 2	1 273	1 472	1 183	1 122	1 135	1 084	1 395	1 670	2 279	2 377	1 820
Share of short-term SME lending	% of total SME lending	19.66	18.96	13.82	14.83	16.34	19.64	15.51	21.95	18.93	26.60	14.75	16.75
Government loan guarantees, SMEs	KZT million	..	..	..	339	2 060	3 854	3 336	7 284	11 021	11 952	17 016	21 728
Government guaranteed loans, SMEs	KZT million	..	..	..	677	4 238	10 991	7 090	15 423	26 964	26 903	42 783	51 216
Direct government loans, SMEs	KZT billion	5.5	125.2	257.4	132.9	82.7	78.2	85.8	188.4	236.9	247.3	230.5	272.9
Non-performing loans, total	% of all business loans	..	..	..	..	..	29.80	31.15	23.55	7.95	6.72	9.31	7.38
Non-performing loans, SMEs	% of all SME loans	..	..	..	..	..	22.33	22.40	11.74	12.69	8.79	9.58	9.33
Interest rate, SMEs	%	14.28	15.67	14.01	13.34	12.49	12.10	12.46	11.48	12.95	14.01	13.66	12.71
Interest rate, large firms	%	12.77	14.88	14.04	12.72	11.08	10.58	10.07	10.01	13.47	14.49	12.39	11.22
Interest rate spread	% points	1.51	0.79	-0.03	0.62	1.41	1.52	2.39	1.47	-0.52	-0.48	1.27	1.49
Non-bank finance
Leasing and hire purchases	KZT billion	..	..	..	60.4	80.1	84.5	106.8	129.0	126.6	167.0	176.5	277.6
Factoring and invoicing	KZT million	..	..	..	..	..	7 889	15 125	33 160	37 655	..	..	..
Other indicators
Bankruptcies, total	Number	0	2	3	8	36	77	125	143	257	516	1 978	3 493
Bankruptcies, total (growth rate)	%, year-on-year growth rate	..	..	50.00	166.67	350.00	113.89	62.34	14.40	79.72	100.78	283.33	76.59

Source: See Table 25.4.

SMEs in the national economy

The different categories of enterprises are provided in the Code on Entrepreneurship of the Republic of Kazakhstan and are based on the average annual number of employees and average annual revenues of companies (see Table 25.2.).

Table 25.2. Categorisation of firms in Kazakhstan

Category	Annual average number of employees	Average annual income
Micro	0-15	Up to 30 000 MCI or KZT 72.1 million.
Small	16-100	Up to 300 000 MCI or KZT 721.5 million.
Medium	101-250	Up to 3 000 000 MCI or KZT 7 215.0 million.
Large	More than 250	More than 3 000 000 MCI or KZT 7 215.0 million.

Note: MCI (Monthly Calculated Index) is used to calculate pensions, benefits, fines, taxes, etc. in Kazakhstan.

Source: the Code on Entrepreneurship of the Republic of Kazakhstan, Article 24.

SMEs make up 96.7% of all entities in Kazakhstan. As of the end of 2018, more than 1.5 million SMEs were registered in the country, including enterprises, individual entrepreneurs and farms. The major sectors of work among SMEs included wholesale and retail, services and agriculture.

Table 25.3. Distribution of SMEs in Kazakhstan as of 01.01.2019

Firm size	Number
Individual entrepreneurs and farms	1 188 629
Small	377 925
Medium	2 787
Total	1 569 341

Source: Committee on statistics of the Ministry of National Economy of RK.

As of the end of 2018, SMEs employed 3.3 million people in Kazakhstan, or 37.5% of the total employed population in the country. SMEs produced a total output of KZT 26.5 trillion in 2018 and contributed 28.9% to the country’s GDP.

SME lending

In 2018, new lending to SMEs (over the period) increased by 14% compared with last year, and the outstanding SME loans decreased by 15%. This reduced the share of SME loans in total outstanding business loans from 33% to 28%. At the same time, the share of new SME lending in total business lending also decreased in 2018 to 18%.

The reasons for the decline in lending include a number of factors, such as the transfer of problem loans by banks to the management of specialized companies, the termination of three medium-sized banks. At the same time, an increase in new lending to SMEs by 14% is associated with an increase in the volume of deposits in banks (+ 2.2% in total and + 6.6% for deposits of individuals).

Credit conditions

The National bank of Kazakhstan conducts a quarterly survey of the heads of banks who are responsible for formation of the general credit policy and (or) risk management. The purpose of the survey is to assess trends in changes of supply and demand of loan resources and risk management systems. According to the results of survey, in 2007-09, terms for SME lending by banks became tougher. This was generally expressed through higher interest rates and collateral requirements. In 2010-13, when the economy and consumption were growing very rapidly, and the amount of deposits in Kazakhstani Tenge doubled, banks softened the terms for lending to SMEs. Since 2014, as the local currency has been depreciating, banks have reverted to a tough loan policy again.

This trend is also reflected in interest rate data. In 2007-09, SME interest rates exceeded 14%. In 2010-14 rates decreased, falling to a low of 11.5% in 2014. Since then, interest rates have climbed and have exceeded 14% in 2016.

As for 2018, the number of respondents that noted toughening of credit policy was still exceeding the number of those that noted softening. However, the difference between the former and the latter is becoming more and more insignificant (22% in 2015, 7% in 2016 and 4% in 2017-2018). Having said this, there was a moderate decrease in SME interest rates in 2018 of 0.95 percentage points.

Alternative sources of SME financing

Bank loans are the main source of external financing for SMEs. Among alternative sources of financing, other forms of debt financing prevail.

Since 2010, volumes of lease financing have increased steadily. In 2018, total leasing and hire purchases stood at KZT 277.6 billion, almost 4.6 times their figure in 2010.

The microfinance market in Kazakhstan is developing well. In 2012, the legislation “On Microfinance Organisations" was adopted, replacing the earlier “On Microcredit Organisations” law in Kazakhstan. This provided a strong growth impetus in the market. Micro financial activity is now regulated by the National Bank of Kazakhstan, which has already registered 189 microfinance organizations. In 2018, microfinance organisations provided KZT 165 609 million in total microcredit for business purposes.

Other indicators

Until 2009, a maximum of one enterprise a year completed bankruptcy procedures. In 2009, government measures to simplify the procedure of closing enterprises and resolving insolvency reduced the timeline for these processes from 3.3 years to 1.5 years. As a result, the number of bankruptcies has increased year-on-year for the last ten years. In 2018, there were 3 493 bankruptcies, a 76.6% growth over that of 2017

By the end of 2018, the share of loans with arrears of more than 90 days (NPL) in banks’ portfolio decreased from last year. Total non-performing business loans fell from 9.3% to 7.4%, while that of non-performing SME loans decreased from 9.6% to 9.3%. Thereby, commercial banks fulfil requirements of the National Bank of Kazakhstan concerning maximum appropriate NPL level of no more than 10% of the total loan portfolio.

Government policy response

The government of Kazakhstan has been working to ensure a favourable business climate and engage more entrepreneurs to start up. To expand SMEs’ access to finance, a number of programmes are in place in the country to provide concessional lending and microfinance, subsidised interest rates, loan guarantees and grants to start a business. The main operator of financial support programmes for SMEs is the Damu Entrepreneurship Development Fund.

Government programme for business support and business development “Business Roadmap 2020”

“BRM 2020” programme has been in operation since 2010 and is administered by the Ministry of National Economy of the Republic of Kazakhstan. Initially, the focus of the programme was on supporting enterprises in non-extracting and import-substituting sectors. Over time, this was expanded to rural areas, small and single-industry towns’ entrepreneurs, who are not subject to sectoral restrictions. The programme implementation involves both central and local authorities, Damu Entrepreneurship Development Fund, Atameken National Chamber of Entrepreneurs and commercial banks. The types of support that the programme offers include interest rate subsidies, loan guarantees, grants, training and consulting assistance; and meets the basic needs of entrepreneurs, making “BRM 2020” the most popular government programme.

In order to ensure greater coverage of enterprises by the state support, in 2018, the government introduced some amendments to the programme regarding the conditions for obtaining subsidies and guarantees. First, interest rate of loans that can be subsidized or guaranteed was changed from fixed to floating and was pegged to National bank’s base rate plus 5%. Second, the size of the subsidy is now not more than 50% of loan interest rate. Third, the maximum subsidy period is now not more than 5 years without prolongation option. And fourth, maximum loan amount that can be subsidized was decreased to KZT 2 500 million.

Interest rate subsidies

Interest rate subsidies are provided in several directions depending on the target segment:

• For projects without sectoral restrictions in single-industry towns, small towns and rural areas, the subsidy is up to 50% of nominal rate (that should not exceed National bank’s base rate plus 5%). The maximum loan amount is KZT 750 million. The term of the subsidy is up to five years;

• For projects in priority sectors, the subsidy is up to 40% of nominal rate (that should not exceed National bank’s base rate plus 5%). The maximum amount of the loan is KZT 2 500 million. The term of the subsidy is up to five years;

• For projects in the manufacturing industry, the size of the subsidy is up to 50% of nominal rate (that should not exceed National bank’s base rate plus 5%). The maximum amount of the loan is KZT 2 500 million. The term of the subsidy is up to five years;

• For projects of exporting enterprises in priority sectors, the subsidy on loans in national currency is up to 40% of nominal rate (that should not exceed National bank’s base rate plus 5%); on loans in foreign currency the subsidy is up to 5% of nominal rate that should not exceed 12%. The maximum amount of the loan is KZT 2 500 million. The term of the subsidy is up to five years.

As of the end of 2018, contracts for subsidising were signed for 12 837 projects on loans amounting KZT 2 563.84 billion. Subsidies of KZT 224.08 billion were disbursed.

Loan guarantees

Loan guarantees are also provided with varying conditions depending on the target segment:

• Guarantees up to 85% on loans up to KZT 20 million are provided for young entrepreneurs and start-ups;

• Guarantees up to 50% on loans up to KZT 180 million are provided for projects without sectoral restrictions in single-industry towns, small towns and rural areas;

• Guarantees up to 50% on loans up to KZT 360 million are provided for projects in priority sectors;

• Guarantees up to 20% on loans up to KZT 1 850 million are provided for projects in the manufacturing industry.

As a new product in the financial market of Kazakhstan, loan guarantees are quickly becoming popular. The number of guarantee contracts signed increased from 3 in 2010 to 4 853 by the beginning of 2019, with loan guarantees of KZT 73.53 billion being guaranteed for loans amounting to KZT 178.69 billion.

SME financing in the manufacturing industry within “Nurly zhol” programme and plans for cooperative actions of the government and the National Bank of the Republic of Kazakhstan

The government in Kazakhstan provided funds amounting to KZT 200 000 million in 2014-15 to provide affordable loans for SMEs in the manufacturing industry through commercial banks. SMEs can thus receive loans at a rate of 6% for up to KZT 1 850 million for a period of up to 10 years. As of the end of 2018, 2 314 projects were financed for a total of KZT 509 465 million.

The programmes of Damu Entrepreneurship Development Fund

Damu Entrepreneurship Development Fund implements a number of its own programmes, which are financed from the company’s own capital or by raising funds from local authorities and international financial organisations. Within the framework of regional programmes, loans are granted at a rate of up to 8.5% in priority sectors, which are determined depending on the specifics of the economy of each region. Within the framework of international programmes, loans are issued on market terms and without sector restrictions.

In terms of its own programmes, Damu Fund and its partner organisations (banks, leasing companies, microfinance organisations) have financed more than 33 400 projects for KZT 493 367 million as of the end of 2018.

In 2017, Damu Fund along with other state organizations started working as an operator of the “Programme for the development of productive employment and mass entrepreneurship for 2017-2021 - Enbek”. Damu Fund is responsible for providing soft loans with a rate of up to 6% per annum for entrepreneurs in urban areas. As of the end of 2018, 1 699 projects in urban areas were financed for a total amount of KZT 20 091 million.

Damu Fund also attracted funds from UNDP amounting to USD 3 million to stimulate investments in urban energy efficient projects, in 2017. The funds are used to provide interest rate subsidies or loan guarantees for SMEs. At the end of 2018, 6 projects were signed on the total amount of loans of KZT 806.6 million.

Figure 25.1. Trends in SME and entrepreneurship finance in Kazakhstan

Source: See Table 25.4.

Statlink

Table 25.4. Definitions and sources of indicators for Kazakhstan’s scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Portfolio of SME loans, as of the year-end	National bank of RK
Outstanding business loans, total	Portfolio of total business loans, as of the year-end	National bank of RK, estimation
New business lending, SMEs	Amount of new loans for SMEs provided during a year	National bank of RK
New business lending, total	Amount of new business loans provided during a year	National bank of RK, estimation
Short-term loans, SMEs	Portfolio of SME short-term loans, as of the year-end	National bank of RK
Long-term loans, SMEs	Portfolio of SME long-term loans, as of the year-end	National bank of RK
Stateloan guarantees, SMEs	Amount of new loan guarantees provided by Stateduring a year	Damu Fund
Stateguaranteed loans, SMEs	Amount of new loans guaranteed by Stateduring a year	Damu Fund
Direct Stateloans, SMEs	Amount of new loans for SMEs under Statesupport programmes provided during a year	Damu Fund
Interest rate, SMEs	Weighted average interest rate on new SME loans provided during a year	National bank of RK
Interest rate, business loans total	Weighted average interest rate on new business loans provided during a year	National bank of RK, estimation
Non-performing loans, total	Non-performing loans out of total bank loans, as of the year-end	National bank of RK
Non-performing loans, SMEs	Non-performing SME loans out of total SME loans, as of the year-end	National bank of RK
Non-bank finance
Leasing and hire purchases	Amount leasing contracts signed during a year	Committee on statistics of Ministry of national economy of RK
Factoring and invoice discounting	Amount of accounts receivable resold to factors during a year	Expert RA Kazakhstan Rating agency
Other
Bankruptcies, total	Number of enterprises declared bankrupt during a year	State revenue committee of Ministry of finance of RK

References

National bank of RK, “Statistical bulletin” (2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018)

http://www.nationalbank.kz/?docid=310&switch=russian

National bank of RK, “Current state of banking sector of the Republic of Kazakhstan” (2013, 2014, 2015, 2016, 2017, 2018)

http://www.nationalbank.kz/?docid=1065&switch=russian

National bank of RK, “Interviewing banks about credit policy” (2013, 2014, 2015, 2016, 2017, 2018)

https://nationalbank.kz/?docid=650&switch=russian

“Damu” Entrepreneurship Development Fund, Annual reports (2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017)

https://www.damu.kz/81

Committee on statistics of Ministry of national economy of RK – Small and medium-sized entrepreneurship, Statistics of enterprises

http://www.stat.gov.kz/faces/wcnav_externalId/homeNumbersSMEnterprises

http://www.stat.gov.kz/faces/wcnav_externalId/homeNumbersBusinessRegisters

Committee on statistics of Ministry of national economy of RK, “On services rendered in the Republic of Kazakhstan” (2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018), “On leasing activities in the Republic of Kazakhstan” (2014, 2015, 2016, 2017)

http://www.stat.gov.kz/faces/wcnav_externalId/homeNumbersServices

State revenue committee of Ministry of finance of RK, “The list of bankrupts on which the court's decisions declaring their bankruptcy entered into legal force as of 31 December 2018”

http://kgd.gov.kz/ru/content/spiski-nesostoyatelnyh-dolzhnikov-1-1