State support of small and medium business in Kazakhstan: current status and prospects

May 2011, Astana

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Social importance of SME and global experience of State support for entrepreneurship

SME in foreign countries

The main sphere of employment

Formation of “middle class” as a vital factor in social and political stability

Every year at the expense of small businesses is 2/3 jobs

In the United States in a small business with more than 53% of the total employed population

In the EU in small businesses employ about 50% of the total employed population

In Japan, small businesses accounted for 72% of the total employed population

In Kazakhstan there are 2.5 mln. individuals in SME – 31 per cent of the employed population There is great scope for development of the sector

Many countries have special structures and funds to support SMES (SBA (United States), PARP (Poland), OSEO (France), SBC (Korea), KOSGEB (Turkey), etc.)

Fund “DAMU" actively works to build partnerships and learn from the experience of foreign state institutional support for SME

Comparison of the SME sector in Kazakhstan with other countries

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In Kazakhstan there are lower rates of contribution of SMEs in GDP and employment

The distinctive features of industrial structure of SMEs in Kazakhstan: smaller share of manufacturing industry and services

52% 52%47%

59%

32%

54% 56%

69%

81%

31%

98% 99% 99% 99%93%

0%

25%

50%

75%

100%

USA United Kingdom Poland Turkey Kazakhstan

Share in GDP Share in employment Share in the total number of enterprises

12%27%

5% 4%10%

58% 23%

35% 37%15%

5%

6%

7%

8%

11%

12% 32% 47%

37%

11%

21%11%

4%

2%7% 10% 13%

3%

1% 4%

23%

0%

20%

40%

60%

80%

100%

USA United Kingdom Poland Turkey Kazakhstan

Agriculture

Industry

Construction

Trade

Transport and communications

Services

Other

Conditions for doing business in Kazakhstan

In the “Doing Business 2011» Kazakhstan headed the list of countries with most improved business conditions

Among a Customs Union countries the most favourable conditions are in Kazakhstan (Belarus- 68, Russian Federation- 123)

in 2008. In 2009 In 2010 In 2011 Ease of doing business ranking 80 64 74 59

Registration of enterprises 57 78 85 47Lending 48 43 69 72Protecting investors 51 53 57 44Taxation 44 49 53 39International trade 178 180 182 181

Rating For "Doing Business“ , World Bank

Negative dynamics on individual positions illustrates the need for further work to improve conditions

Data source: www.doingbusiness.org 4

«…We do collect in Kazakhstan not only more friendly attitude to business in terms of social payments, but also on a number of other positions, in particular, protection of property..»

President of the Russian Union of Industrialists and Entrepreneurs A. Shokhin during the meeting with the Prime Minister of the RF V. Putin

49,7 51,1 52,4 52,0

10,3 10,8 11,7 9,5

0

10

20

30

40

50

60

01.01.2008 01.01.2009 01.01.2010 01.01.2011

Lending of economy

Lending of small business

Dynamics of Bank lending

Annual volumes of granted loans (bn. USD)

Loan portfolio of the STB (bn. USD)

Since 2007:

• Steadily declining annual volumes of lending

• practically not changing the size of the loan portfolio of STB

Data source: National Bank of RK(www.nationalbank.kz) 5

66,1

40,6

28,0 26,0

12,88,7 5,2 4,7

0

10

20

30

40

50

60

70

2007 2008 2009 2010

Lending of economyLending of small business

ProgramActual issue,

million. $.Number of borrowers

Created jobs

Stabilization program- tranche 1

597,1 2 791 3 064

Stabilization program - tranche 2

1 115,9 2 996 4 382

Stabilization program – tranche 3

1 359,3 3 009 3 930

«Damu-Regions» 330,2 1 392 2 327«Damu-Ondìrìs» 262,2 214 4 834Financing SMES in Zhanaozen city

1,0 17 14

Women's enterprises 12,1 442 121Lease financing for SME 6,9 39 1 670«Damu-Regions 2» 22,8 69 370SME projects dot funding program

6,7 17 80

Total 3 714,2 10 986 20 792

Results of programs of “Damu” on finacial support of entrepreneurs

Distribution by region (million. USD)

Over $ 3.7 billion was sent for financing over 10 ths. Borrowers Every 5th dollar in lending of SMEs was provided by the government Effect of implemented programs:• Supported liquidity of STBs• Provided social stability, created and supported by more than 20 thousand. jobs• 68% of funds aimed at financing projects in the regions, incl. 18% outside of regional centres

By 01.04.2011,

Detailed information on: www.gis.damu.kz 6

7994101120123126138

172198

229239

254276

351390

805

ZhambylAtyrau

QyzylordaMangystau

North KazakhstanAlmaty

South KazakhstanAkmola

West Kazakhstan

PavlodarKostanai

AktobeEast Kazakhstan

AstanaKaragandaAlmaty city

Interest rates on loans to STBs and the Fund's programs

Interest rates stipulated placement Fund programme

Despite lower interest rates, for most subjects, especially SMES, start-up business loans of STBs continues largely closed

The main barriers for SMES to obtain bank credit:

Dynamics of rates on loans small business banks

Data source: National Bank of RK(www.nationalbank.kz) 7

lack of credit history the absence of collateral simplified accounting

poor credit analysis

high unit costs increased lending risks

14,3%

15,7%

14,0%

13,3%

11%

12%

13%

14%

15%

16%

17%

2007 2008 2009 2010

18,3%

14,2% 13,7%

12,2%

8,5%

16,5%

12,5% 12,6%11,3%

8,0%

6%

9%

12%

15%

18%

21%

1 tranche 2 tranche Damu-Regions

3 tranche Damu-Ondiris

Effective ratesNominal rates

Program "Business roadmap 2020"

Problems in implementing the programme:Duration of approval applications (processing of applications in multiple stages at different levels), including guarantee > low number of guarantee treaties

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Directions ApplicationsApproved

applicationsContracts

1st direction –interest rate subsidizing 331 258 147

1st direction – loan guarantees 50 14 8

2 nd direction –interest rate subsidizing

377 94 60

3rd direction- interest rate subsidizing 45 38 27

Aim – sustainable and balanced growth of regional entrepreneurship in non-primary sectors of the economy

The results of the programme at 25.04.2011.:

Since 2011, Fund “DAMU" was appointed Operator of 4-th direction “Enhancing entrepreneurial capabilities" within the framework of the Program “Business Roadmap -2020 " (training entrepreneurs, service support, internship abroad)

1. Financial Support

State support for SMEs

Subsidizing of interest rates

Provision of resources for banks, leasing companies

and microfinance organizations

2. Non-financial support

formation of infrastructure

Information and analytical support

Consulting, Education

4 . Administrative control 5. Fiscal adjustment6. Providing access to physical

infrastructure

3. Stimulating demand for SME production

- active role of the “DAMU” The Foundation acts as an operator or agent programs

- advisory role of the Fund “DAMU” “DAMU” Fund may enter into interagency working groups

Integration of SMEs with large business

Development of a system of state orders

Protection of CompetitionMeasures of tariff and

nontariff regulation

State support for SMEs in Kazakhstan

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Guaranteeing of credits

Equity financing

Development of guarantee system

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TODAYStep-by-step approval of single applications of entrepreneurs:

1.Assurance of compliance with sectoral priorities in accordance with state policy

2.Time-consuming assessment of applications

3.Small coverage of target audience

TOMORROW «Pool» guaranteeing:

1.Bigger coverage of borrowers

2.Faster distribution of big volumes of funds among borrowers

3.Abidance of market rules in terms of selection of borrowers by banks

4.Higher efficiency of public-private partnership

Goal: Maximal coverage of loans with guarantees from the government

Education Advisory-support

FeedbackInformation

support

Fund “DAMU" programs to improve the competencies of entrepreneurs

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Since 2009 Fund “DAMU" embarked on programs to improve the competencies of entrepreneurs

• Enterprise support centres• Business Portal

• Call-Center• Program "Business Advisor"

• Report on the SMEsector

• Monthly magazine“My business. Kazakhstan»

• Geographic information system

• Roundtables andforums of SMEs

of Kazakhstan• Marketing researches

Интеграция информационно-консультационной и финансовой поддержки позволяет достичь синергического эффекта, снизить транзакционные издержки и бизнес-риски МСБ, в т.ч. через повышение профессионализма и прозрачности заемщиков

1 этап:Пропаганда

предпринимательства

2 этап:Формирование идеи, защита бизнес-плана

3 этап:Привлечение

финансирования

4 этап:Ведение бизнеса

Обучение, разъясни-тельная деятельность

Консультации,услуги ЦПП

Поручительства, гарантии

Консультации,услуги ЦПП

Head Office050004, Almaty, 111 Gogol Street,Теl.: 8 (727) 244-55-66, 244-55-77

Теl./fax: 8 (727) 244-83-41E-mail: info@fund.kz

Site Facility: http://www.fund-damu.kz

Thank you for your attention!

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