23. Kazakhstan
In 2022, SMEs made up 96.9% of all businesses in Kazakhstan. The share of people employed by SMEs was 45.8% of the total employed population. SMEs contributed 36.5% to the country’s GDP that same year.
SME lending was on the rise in Kazakhstan since 2014 up to 2017. In 2017-2019 the SME loan portfolio was showing a negative trend. In 2022 the SME loan portfolio increased by 20.1%. At the same time, new lending to SMEs increased by 16.4% over the last year. Due to the fact that the portfolio of loans to SMEs increased, the share of loans to SMEs in the total portfolio of business loans also grew to 34.1%. The increase in lending dynamics is largely due to a significant improvement in the operating environment, relaxed quarantine restrictions, the offer of new products, and the development of digital channels and ecosystems.
Interest rates for SMEs have fluctuated over the last years, growing steadily from a record low of 11.5% in 2014 to 14% in 2016. In 2022, the rate was 17.2%, while that of large enterprises was 15.9%. This growth is due to the increase in the base rate by the National Bank of the Republic of Kazakhstan.
Among non-bank sources of finance, leasing has the largest market and is steadily growing. In 2021, leasing and hire purchases were almost 8 times higher than their 2010 level. The development of leasing and the growth of its indicators is due to several reasons. Firstly, there is a growing need for industrial, transport and agricultural enterprises to update and expand the fleet of machinery and equipment. Secondly, many enterprises have problems providing collateral for loans from STB, while leasing companies are more flexible in their collateral policy. Thirdly, the procedure for making lease payments is one of the biggest advantages of leasing. The agreement may optimally take into account the interests of all parties, since the size and period of payments are determined on the basis of a joint agreement.
Non-performing loans (NPL) with arrears of more than 90 days in banks’ portfolio among both total loans and SME loans slightly increased in 2022 from 3.3% to 3.4%. 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.
Since 2010, the government, through “Damu” Entrepreneurship Development Fund, has provided subsidizing of interest rate expense and loan guarantees for SMEs under the “Business Roadmap” Programme. A new financial instrument in Kazakhstan, loan guarantees are becoming popular very quickly, escalating from just three guarantees in 2010 to 50 789 guarantees at the end of 2022.
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 23.2).
SMEs make up 96.9% of all entities in Kazakhstan. As of the end of 2022, almost 2 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.
As of the end of 2022, SMEs employed 4.1 million people in Kazakhstan, or 45.8% of the total employed population in the country. SMEs produced a total output of KZT 59.2 trillion in 2022 and contributed 36.5% to the country’s GDP.
In 2022, new lending to SMEs (over the period) increased by 16.4% compared with last year, and the outstanding SME loans also increased by 20.1%. This raised the share of SME loans in total outstanding business loans from 42.6% to 47%. At the same time, the share of new SME lending in total business lending also grew in 2022 to 34.1%.
Significant improvements in the operating environment, new product offerings, and development of digital channels and ecosystems have increased the SME loan portfolio and its share of the total business loan portfolio.
The National Bank of Kazakhstan conducts a quarterly survey to Banks’ managers who are responsible for the implementation of the general monetary policy and (or) risk management. The purpose of the survey is to assess trends in supply and demand of loan resources and risk management systems. According to the results of the 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 was expanding rapidly, the amount of deposits in Kazakhstan doubled, and 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. In 2022 we can see that interest rate increased significantly to 17.2%.
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 2021, total leasing and hire purchases stood at KZT 491.6 billion, which is 2.6% more than in 2020.
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. Microfinancial activity is now regulated by the National Bank of Kazakhstan, which has already registered 239 microfinance organizations. In 2022, microfinance organizations provided over KZT 743 billion in total microcredit for business purposes.
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 from year to year over the past 10 years. In 2018, there was a maximum value of 3,493 bankruptcies. In 2022, there is a similar picture in terms of the number of bankruptcies compared to 2021, amounting to 3,029 bankruptcies.
By the end of 2022, the share of loans with arrears of more than 90 days (NPL) in banks’ portfolio decreased from last year. Total non-performing business loans increased from 3.3% to 3.4%, while that of non-performing SME loans declined from 4.4% to 3.9%. Thus, commercial banks, fulfilling the requirements of the National Bank of Kazakhstan, regarding the maximum suitable level of LL, carry out high-quality work to reduce the volume of non-performing loans.
The government of Kazakhstan has been working to ensure a favourable business climate and engage more entrepreneurs to establish start-ups. To expand SMEs’ access to finance, a number of programmes are in place in the country to provide concessional lending, microfinance, subsidized 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 2025”
“BRM 2025” 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-extractive and import-substituting sectors. Over time, this was expanded to entrepreneurs in rural areas and small and single-industry towns, 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 2025” the most popular government programme.
The implementation of the programme includes both central and local authorities, the Damu Entrepreneurship Development Fund, the Atameken National Chamber of Entrepreneurs and commercial banks. Under the programme a range of types of support are offered to meet the basic needs of entrepreneurs, including interest rate subsidies, loan guarantees, grants, training, and advisory assistance. The National Enterprise Development Project 2021-2025 is the most popular government programme.
Interest rate subsidies
Interest rate subsidies are provided in several directions depending on the target segment:
for projects under the first direction of the programme, the maximum rate for small business loans consists of the base rate of the National Bank of the Republic of Kazakhstan plus an additional 7%, of which 6% is paid by the entrepreneur, and the difference is subsidized by the state. The maximum loan amount is KZT 20 million. The term of the subsidy is up to 5 years;
for projects within the second direction, the maximum rate on loans consists of the base rate of the National Bank of the Republic of Kazakhstan plus an additional 5%, of which 6% is paid by the entrepreneur, and the difference is subsidized by the state. The maximum loan amount is KZT 3 billion. The term of the subsidy is up to 5 years.
As of the end of 2022, 85,860 subsidy agreements were signed for a total loan amount of KZT 5.5 trillion. The amount of subsidies paid amounted to KZT 537.2 billion, including 19,437 contracts for loans worth KZT 848.5 billion in support of the most affected sector of the economy (anti-crisis measures of the Government), the amount of subsidies paid amounted to KZT 31 billion.
Loan guarantees
Loan guarantees are also provided with varying conditions depending on the target segment:
guarantees up to 50% on loans up to KZT 1 trillion are provided for existing entrepreneurs;
guarantees up to 85% on loans up to KZT 360 million are provided for start-up entrepreneurs;
guarantees up to 85% on loans up to KZT 20 million are provided for micro and small enterprises as a portfolio guarantee.
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 50 933 by the beginning of 2022, with loan guarantees of KZT 533 billion being guaranteed for loans amounting to KZT 1.135 trillion.
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 billion 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 1.85 billion for a period of up to 10 years. As of the end of 2022, 2 867 projects were financed for a total of KZT 926 billion.
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 economic structure 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 organizations (banks, leasing companies, microfinance organisations) have financed more than 63 858 projects for KZT 1.044 trillion as of the end of 2022.
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 2022, 4 763 projects in urban areas were financed for a total amount of KZT 69 billion.
Damu Fund also attracted funds from UNDP amounting to USD 5 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 2022, 39 projects were signed on the total amount of loans of KZT 2.8 billion.
Source: See Table 23.1