February 2017—In the Kyrgyz Republic, almost 50 percent of potential borrowers cannot get loans from banks because they do not have enough collateral. Often, these are small businesses that have good potential for growth but do not have the assets necessary to secure additional financial resources.
Zalayka Naamatova has been baking and selling bread in Kara-Balta for six years. When she decided to expand her business and turned to banks, she faced that very problem—not enough collateral.
“In baking business, I’m always short of money. That’s why I decided to get a loan. When I went to banks, it turned out that interests were high and they asked for a collateral,” says Naamatova.
In 2011, the Kyrgyz Republic introduced a new financial instrument—the guarantee fund, which was designed to help entrepreneurs like Naamatova gain access to financial resources by providing guarantees on loans. A guarantee fund issues credit guarantees for businesses that do not have sufficient collateral. USAID helped to introduce this financial instrument to create new opportunities for those small and medium businesses.
According to the Association of Guarantee Funds, since 2011, guarantee funds have issued over 400 guarantees, which have helped to generate $8.7 million (600 million Kyrgyzstani soms) in revenue and create 342 new jobs.
“Establishment of a guarantee fund is a good incentive for entrepreneurs and impetus to the development of small and medium businesses,” says Arzybek Kozhoshev, Kyrgyz minister of the economy.
Having seen the successful integration of the financial instrument into the country’s economy, USAID continued to support the mechanism. Under its Collaborative Governance Program, which seeks to improve the level of collaboration between government and non-government organizations, USAID has been working with the Association of Guarantee Funds to improve the legal framework for guarantee funds. The association initiated changes to the law on guarantee funds to provide access to loans for even more small and medium businesses.
Throughout 2016, the association worked with the government, members of Parliament, and financial experts to develop changes to the current law and advocated for their adoption. In fall 2016, the amendments to the law were adopted by Parliament and approved by the president. The changes included increased thresholds for private share in guarantee funds and the amount of credit that is secured by guarantees. The association expects these changes to help mainstream the financial instrument and create more guarantee funds throughout the country.
As the amendments to the law were being processed by Parliament, the Government of the Kyrgyz Republic recognized the contribution of guarantee funds to the economy and established a national guarantee fund as a joint stock company. With over $1 million in capital coming from the government, another $3 million was matched by the Asian Development Bank. The joint stock company Guarantee Funds is looking for new sources of funding to expand their benefits to Kyrgyz businesses even further.
Naamatova was one of the pioneer entrepreneurs who used the services of guarantee funds. The Kara Balta guarantee fund, one of the original six funds organized throughout the country, helped her get the loan she required to grow her business.
It is with a sense of pride that Naamatova says, “I have increased the production of bread to supply city schools and kindergartens, and to sell through the retail network. In addition, I also hired two women and increased tax payments to the local budget.”
USAID’s Collaborative Governance Program runs from 2013 to 2018.
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