Реферат: Small business lending in Kazakhstan (предоставление кредитов малому бизнесу в Казахстане)

I.

Introduction.

A. Reasons for undertaking research.

At the times of SovietUnion, there wasn’t not only small or middle business, there was not anybusiness at all, everything was public and there was no owners; so allcountries of ex-Soviet Union have to develop their small enterprisesintensively. For Kazakhstan, it was very difficult, mainly because Kazakhstanhad more mineral industry and a little of agriculture, for the most part — grain. Processing industry was very weak. When USSR broke up and youngKazakhstan had to care about itself, enterprises needed huge amounts of moneyto buy necessary equipment, employ qualified workers to work in mineralindustry and to develop processing industry, which demand, by the way, moreexpenses. However, firstly, government and banks did not have enough money togive credits to the enterprises and secondly, it was much easier to createmonopoly. Thus, our system of supporting small business was not correct fromthe very beginning. But still, 10 years later when it seems that Kazakhstan hadgrown roots and almost everything going rather well, our system of supportingsmall business in a bad condition (see Appendix 1).

There are several reasonswhy our small business develops very slowly. Firstly, there was not anyoptimal government strategy it support small business. Government did notreveal the appropriate branch and regional priorities for small business. Secondly,another problem is corruption. As we know, officials can build huge barriersbefore entrepreneurs, for example, different checks, problems withregistration, and others. Thirdly, a high taxes on enterprises.

Small enterprisespay more taxes than big ones. This system of taxation should be more fair,because for small enterprises there is no stimulus not to develop, but even toconduct their own business. Lastly, in our country there is noappropriate lending system. Banks do not want to credit small business, becausethere is more probability that business won’t go well, also there is bigproblems arises with preparing necessary documents in order to receive acredit, another problem is liquid enough pledge. So we can see, thatenterprises collide with many problems when they are trying to receive acredit.

What for ourcountry should support small business? Small business creates new workplaces,form middle class, develop trade and production. If we would not develop smallbusiness, there will be no competitive market, thus there will be noimprovements in our market, in products and services. So, we should developsmall business in Kazakhstan to build up our economy, particularly we shouldimprove our crediting system of small enterprises, because small firms have todevelop themselves, but they can not do that without money. Thus, our researchproblem is with which problems small business meets, when it is trying toreceive a credit.

B. Researchstructure.

Our researchstructure:

1.

Necessity to credit small business. In this chapter,we will tell you about needfulness of developing small business and some waysto realize financing and investing support.

2.

Goals for receiving a credit. In this chapter, youwill read about aims of entrepreneurs who are trying to receive a loan and onwhat kind of goals banks lend money.

3.

Terms for receiving acredit. You will read about necessary documents, required in banks anddifficulties with preparing these documents, about meeting with representativeof credit department, about pledge and interest rates.

4.

Interest rates andrepayment. In the chapter we will tell you about one of the most importantthings, with which each entrepreneur meets when he receives a loan – interestrates. Another important thing you will read in this chapter is a day or periodof repayment.

C. Researchmethodology.

We conducted ourresearch on case study and survey. We reviewed literature, Internet, publishing information, periodical, science magazines, andreports of different banks. We conducted an interview with respondent Ms SahauyevaZhanar, who is working as a chief accountant in “Oasis” company, this interviewwas organized in 3 of April (checklist, see Appendix #1).

II.

Necessityto credit small business.

First of all, let us definethe notion of small business. According to the existing law, to small businessrefer new and working enterprises, in which number of employee not more than 50and total cost of assets not more than 60 000 calculation indexes (

Law of Republicof Kazakhstan from 19 July 1997 N 131-1 O gosudarstvennoi poddershke malogopredprinimatelstva (with amendments to this law in 10.07.98 № 283-1; in 26.07.99 № 458-1; in 29.11.99 № 488-1)). Thus, for today maximum amountfor assets of small enterprises cannot exceed 46 500 000 tenge. Small and middle business – the basis ofmarket economy, it overcomes monopoly, provide employment (see Appendix 2),provide revenues from its activity to government, provide more innovations thanother forms of business.

It is important to creditsmall business. Most of small enterprises had to limit their activity becauseof lack or inaccessibility of credits. Thus, now the weakened business cannotcarry out its functions, which is create new workplaces, form middle class,develop trade and production, and which is effective especially in sphere ofagriculture, tourism, rendering of services to the population, etc. Therefore,financing and investing support is the most important for effective developmentof small business.

Finance and investingsupport for small business can be realized in the following ways:

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Crediting by second tier banks priority projects by tendersystem on the preferential conditions;

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Creating and development of guarantee credit system in asecond tier banks, on a basis of forming pledge funds in regions;

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Promotion of stimulation of second tier banks;

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Continuation of budget andsecond tier banks financing of projects;

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Development of venturefinancing;

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Encouragement of credit partnershipscreation, mutual insurance societies (Finansirovanie I kreditovaniye subyektov malogobiznesa, 2001).

Summary.

Thus, we can see, that it isvery important to develop investing and financial support of small business inKazakhstan. Small business needs money to expand their business, buy equipment,

employ more workers,that is why the key in developing small business is investment in it.

References.

Finansirovanie Ikreditovaniye subyektov malogo biznesa, 2001

http://business.zakon.kz/fincredit/,

Lawof Republic of Kazakhstan from 19 July 1997 N 131-1 O gosudarstvennoipoddershke malogo predprinimatelstva (with amendments to this law in10.07.98 № 283-1; in 26.07.99 № 458-1; in 29.11.99 № 488-1).

III. Goals for receiving a loan.

There are many goals pursuedby entrepreneur when he is asking for credit, but not for all purposes it isgiven. For example, EBRR gives credit for increase in working capital,

investmentslike purchase of real estate, etc. (Krediti dlya malogo biznesa EBRR, 2001), Kazkomertzbank offer credit for increasingturnover, increasing working capital for further growth, expansion ofproduction or volume of services, purchase of machinery, equipment, rowmaterials, improvement of manufacture, purchase, construction and maintenanceof real estate, and other capital investments (Kreditovaniye, 2001).

In our survey, we conductedan interview with chief accountant of “Oasis” company. This firm was organizedin 1997 and busy in selling wholesale trade of medicines, the authorizedcapital was formed from personal savings, and number of employees is equal to12. This company took a credit from Centercredit Bank in year 2000. They took acredit in Centercredit Bank because firstly, they have served in this bank andsecondly, there was program on supporting small business, which were conductedby EBRR. The goal of receiving a credit was increasing turnover. With thiscredit, the company gained 30% income — they made 3 contracts on the totalamount of $19,000. Thus, the company got profit from receiving a credit(Sahauyeva, 2001).

Summary.

Thus, we can conclude, thatthere are many reasons for the enterprises to give an application to the bankin order to receive a credit, and one of the main reason is investing, i.e.buying an equipment, building. However, banks give credit mainly in order toincrease turnover. In our case, the company took credit exactly for thispurposes (increasing turnover), and gained a profit.

References.

Krediti dlya malogo biznesa EBRR, 2001 www.fund.kz/ebrr_c.html

Kreditovaniye, 2001 www.kkb.kz/banking_re/sber/service/06_credit.asp

Sahauyeva Zhanar, 2001,interview

IV. Terms for receiving a loan.

A. Necessary documents

There are several documents,which are required in order to receive a credit, they are:

Application Constituent documents Registration certificate Statistical card Confirmation of RNN by RNI Borrower form and chiefs biographical data Financial reporting for the past 3 years Contracts Cards with a sample of signs Documents establishing right for an object of pledge Certificate about number of employee with chief’s and accountant’s signs with seal Marketable securities prospectus Marketable securities registration certificate Certificate from tax inspection and from extra-budget fund about absence (or presence) of debts (Kreditovaniye, 2001).

Theseare the main documents, demanded by banks, but representative of creditdepartment of the bank may require extra documents, depending upon financedproject (Sahauyeva, 2001).

B. Difficultieswith preparing documents for receiving a loan.

Since half of the year 2000 banks simplified schemefor giving credits. Until year 2000 the main problem in preparing documents inorder to receive a credit was business-plan, but now, after simplifying scheme,the main problem became – preparing annual financial statements, because banksintensify requirements for financial position and accounting documents. Why didthey intensify? Now the majority of small enterprises and not only smallconducts double accounting — one accounting for tax purposes and another forpresentation to banks and investors. In financial statement for tax purposes,for example, the company decreases its revenue or has losses, in order to payfewer taxes, and if this company will bring the same financial statements tothe bank to borrow money, most probably the bank will deny for the loan.

Nowadays there are many organizations, which helpsentrepreneurs to make up different kinds of documents like financial statements,pledge documents, which are demanded in banks, but there is absolute noguaranty that with this financial statements you will receive a credit,simultaneously services of these firms rather high.

In ourinterview, our respondent – Sahauyeva Zhanar, chief accountant of “Oasis”,said, that there was more difficulties with annual financial statements, thanwith other documents. Representative of the credit department of BankCentercredit demanded annual financial statement for the last two years, which wasgiven to the Tax Committee of Republic of Kazakhstan. As was written before,some small companies conduct double-accounting, and banks know about this, thatis why Bank Centercredit have demanded financial statements for tax purposes.By the way, “Oasis” company did not addressed to the companies that helpenterprises to prepare necessary documents to gain a credit, but they receiveda credit. (op.cit).

Graph #1 <img src="/cache/referats/8638/image001.gif" align=«left» hspace=«12» v:shapes="_x0000_s1027"><img src="/cache/referats/8638/image003.gif" align=«left» hspace=«12» v:shapes="_x0000_s1026">

This diagram shows in what level each factorinfluence on decision of the bank, when it is giving a credit to theenterprise. As we

can see, the most important is financial report – 31%,that is why it is very important for the enterprise to prepare it in a bestway. After financial statement of the company, follow market, which takes 16%,this means information about customers, suppliers and enterprises’ borrowers,and lenders. The next is pledge –15%, we will consider it in more detailslater.

(Source of the diagram:Osnovniye prinzipi kreditovaniya MP, 2001

).

Another problem is getting sanction for realization aproject. This is due to difficulties with receiving confirmation in differentstate organizations. There are several

supervising organs whose corroborationyou have to receive, but they are varying depending on the project itself.

§

Ministry of Ecology and Natural Resources regionalrepresentations

§

Sanitary-epidemical services

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State Supervision of architecture and construction

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Standardization and certification organs

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Fire services

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Custom services (Dauanov I., 2000)

Mainly, because of imperfectness of our organs, andespecially due to corruption, getting through the expertise takes 6 or moremonths.

C. Meetingwith representative of credit department.

No credit can be given until a meeting of banker andentrepreneur. During this meeting borrower should show and tell about hisbusiness, how it works, in short, he should do the best to present hisbusiness. Banker will ask him questions about financial statements of thecompany, about revenues and losses, so borrower should be prepared for questionslike

this. Credit interview is often held in bank or in enterpriseoffice. By the way, entrepreneur should always offer to visit his office, andnot only because owner is proud to present his business, but also to presentadditional information about his business like first appearance of the office,other rooms and buildings; site, neatness of the office; show employees,equipment. This information will improve impression of representative aboutbusiness (Sahauyeva, 2001). Representative in his turn has to be in connectionwith borrower, keep abreast with the needs of the company, should offer bank inorder to solve financial problems of the enterprise, and should offer to submitapplication for a loan. Thus the representative has to understand how businessworks, risks connected with making deals with this company, keep up thateverything is legal, and look after how borrower spend credit(Osnovniye prinzcipi kreditovaniya MPS, 2001).

From the interview with SahauyevaZhanar we learned that “Oasis” company also prepared to the meeting withrepresentative of credit department. Executor looked through office rooms,presence of the basic, and turnaround means, in general he was satisfied withtotal condition of the business (Sahauyeva, 2001).

D. Pledge.

1. Required pledge.

Banks have toensure their credits, which are given to entrepreneurs in case of bankruptcy.Thus, all banks demand pledge maintenance from borrowers. Banks accept as apledge property, guaranties of other legal persons, and other types of pledges.For instance, European Bank of Reconstruction and Development accept realestate,

motor vehicles, personal property, enterprises’property and goods, which are inbusiness (Yevropeyskiy bank rekonstrukzii I razvitiya, 2001). In our considered“Oasis” company, the pledges were real estate of the founders and commoditystocks. Estimated value of the commodity stocks was equal to 20 mln. tenge.

2. Difficulties of enterprises with providing a pledge.

It is very difficult to receive acredit on ordinary terms, offered by banks. This is due to most enterprises arenot able to provide a pledge required by banks or their pledge is not liquidenough.

There are several problems, which are arising withproviding a pledge to bank. The most important is illiquidity of the pledgethat if offered by enterprises. Banks accept

movableand immovable property,which is owned either by enterprise or entrepreneur, guaranties of other legalpersons, marketable securities (Kreditovaniye, 2001). Another important thingis that banks usually underestimate cost of the pledge. And the last thing isregistration of documents confirmed your ownership of the pledge. Banks, whenthey are giving out a credit, demand these last two items. Thus, if theestimation of the pledge that is carried out by experts of the bank is free ofcharge, then confirmation of ownership is carried out at theexpense of the businessman.(Dauranov I., 2000).

As we already mentioned, the pledge of “Oasis” company to the bank were real estateand

commodity stocks. But firstly, “Oasis” company offeredonly real estate as a pledge, but in bank said that this is not enough, andthen company added commodity stocks (Sahauyeva, 2001). Most probably, thatbank underestimated the cost of real estate, and then demanded more property inorder to ensure its money in a best way. It is well, that “Oasis” company couldoffer commodity stocks, but if there were another company with not very bigamount of assets, we think, that bank would deny in borrowing money, becausethere are so many companies that needs money to increase their turnover or tobuy some equipment, that banks could just choose the biggest company with a bigamount of assets. This is support the idea that banks are more pleased to workwith big companies and with big money, rather than with small enterprises.

Thus, it is very difficult to receive a credit. Youmay have problems with providing a liquid pledge, demanding by banks. Even ifyour business goes well and profitable, your company could just have not enoughassets to offer it to the banks, moreover, you are asking a loan to buy anequipment, to increase your assets, but bank gives loans only to those, whoalready developed. Thus, there is a situation, that rich become richer and poorbecome poorer.

E. Interest Ratesand Repayment.

Now, let us considerinterest rates, which enterprises have to pay as a payment to the banks forlending money. For example, interest rates of NSBK are determined in dependencewith concrete case and project:

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On credits in national currency – from 24%

§

On credits in national currency with fixation of currencyequivalent –from 17 %

§

Oncredits in foreign currency – from 17% (Kreditovaniye, 2001).

These interest rates lookspretty high, but there are a lot of programs on supporting small business, andmany banks support this policies and offer credits to enterprise on lessinterest rates. For instance, Kazkommertz Bank offer 1% on foreign currencycredits (Kreditovaniye (kkb), 2001). For example, our case company “Oasis” tookcredit under program of supporting small business and took a credit in BankCentercredit in national currency under 10%.

The scheme of repayment ofthe credit and interest is usually in most banks on personal scheme. “Oasis”company’s payment schedule also was personally scheduled. They took credit on 9months and made monthly payments: part of the credit itself and part ofinterest rate. In first months repayments interests charged on low rate, butcloser to the 9th month interest grew.

Summary.

Thus, we can conclude, thatentrepreneur has to prepare many documents, prepare to meeting with executiveof credit department of the bank, have a liquid pledge, and have enough assetsto give it as a pledge in order to be able to satisfy the bank’s requirements.There are so high interest rates, but still there are many programs onsupporting small business lending and enterprises have to discover first, whichbank is more suitable and then go and find out its personal specific terms.

References.

Dauranov I.(2000), Maliy bisnes: problemioformleniya kredita, Al Pari No.5:82.

Kreditovaniye, 2001

<a href=«www.hsbk.kz/default.asp?page=corporate&n=»credit">www.hsbk.kz/default.asp?page=corporate&n=credit

Kreditovaniye, 2001 www.kkb.kz/banking_re/sber/service/06_credit.asp

Osnovniye prinzipikreditovaniya MP, 2001

www.tacisinfo.ru/brochure/banksme/pzayav_m.htm

Sahauyeva Zhanar, 2001, interview

Yevropeyskiy bank rekonstrukzii I razvitiya, 2001 www.fund.kz/ebrr_c.html

V.

DataAnalysis.

Now we will summarize allresearch paper.

It is very necessary todevelop lending system in Kazakhstan. There are many reasons for this: smallbusiness creates new workplaces, form middle class, develop trade andproduction, and it was notices that mainly small business develops and inventsnew goods and services, because in that way small business has a chance to bemarked and successfully manage the business. In order to carry out thesefunctions, enterprises needs money to increase its turnover, employ moreworkers for development, buy new equipment, buildings, to make capitalinvestments in other companies, etc. For these purposes enterprises are usuallydemanding money, but most banks most likely to give loans to increase turnover,this is connected with assurance of the loan. For example, our considered“Oasis” company took loan in order to increase working capital, may be bank wasfulfilled by this purpose of the company and may be this was one of the reasonsof receiving a credit.

There are many documents,demanded in banks from companies, which are trying to receive a loan. But themost important for decision-making is financial statements of the prospectiveborrowers. Many firms conduct double-accounting, this means, that they give onevariant of the financial statements to tax commission and another to investorsand banks. It is easy to understand why enterprises do so, they are trying tosurvive and cheat, and there are many reasons to do this, and one of them hightaxes. But, banks know that enterprises conduct separate accounting for them andtry to prevent it. For instance, Bank Centercredit, which lent money to “Oasis”company, demanded annual financial statements of the company, which were givenup to the tax commission. It is difficult to run a business so, that itsfinancial statements would satisfy banks and enterprises tax aversion.

Another important thing ismeeting with representative of credit department of the bank. And it isnecessary that your business left a good impression. You will have to show yourbusiness, show how it works, your equipment, employees, offices. Eachenterprise have o meet with representative if company really wants to receive aloan.

A huge problems arises whenenterprise have to assure a loan by giving a pledge to the bank. Two mainproblems are: that banks underestimate the cost of the pledge and difficultieswith preparing documents confirming your ownership of the pledge. Banks preferreal estate as a pledge, but small enterprises do not have any buildings,because they are limited in money. Thus, our banks want more, than enterprisesare able to allow themselves.

Important item in receivinga loan both for enterprises and banks is interest rates. As it is expectedbanks demand too high payment for lending money. Interest rates are too highand most enterprises do not asking for a loan because there will come a day andyou will have to pay everything back with high payment for the banks services.Nevertheless, not everything is so bad, there are special programs ofsupporting small business, which offer lower interest rates, and this is a realchance for enterprises. However, arises another problem: there are too manyfirms, desiring to receive a loan on lower interest rate. Thus, increasecontrol over maintenance, financial situation of the company, etc. Repaymentdate is also important, but banks usually make a personal schedule forrepayment. Usually there are monthly payments with increasing interest rate.

We can see, that there ismany difficulties arise with receiving a loan. Many problems due to banks wantto ensure their loans, they want more safe, but enterprises are not able tosuit banks’ requirements, thus there are problems with documents, providingliquid enough pledge, meeting with representative of credit department andmany-many others.

VI.

Conclusion.

From the conducted researchwe can conclude, that enterprises meet with a very many problems, when they aretrying to receive a credit. Our lending system needs to be improved. First ofall, banks should be more indulgent to small enterprises, which are not able tomeet some requirements of the banks, especially about pledge.

Secondly, there should bemore programs on supporting small business, like decreasing interest rates,give credits for a more long periods of time, etc.

Thirdly, banks should stopworking only with “big people” with “big money”, but also help smallenterprises to enter into market and freely functionate.

There some measures, whichwere applied in order to improve our lending system, and they are works, butthere should be more support to small business, because it is so weak inKazakhstan. Some enterprises, which are pretty big, rather than others, aregain on these programs, but there should be some support to the beginners.

VII. Bibliography.

Blinov A. (1993) Razvitiye predprinimatelstva Economist No.6:70-73 Dauanov I. (2000) Maliy biznes: problemi oformleniya kredita AlPari 5: 81,82 Ershova G. (1995) Podderzka malogo predprinimatelstva Finansi No.2:17-18 Finansirovanie I kreditovaniye subyektov malogo biznesa, 2001 business.zakon.kz/fincredit/ Isabekov A. (1997) Problemi razvitiya malogo I srednego biznesa v Kazakhstane Economika Kazakhstana No.5-6:120-123 Karibayev A. (1997) Razvitiye malogo predprinimatelstva v Vostochno-Kazahstanskoi oblasti Economika Kazakhstana No.4:13-15 Kazbekov S. (1998) Kogda ge mladenez vstanet na nogi? Finansi Kazakhstana No.11:74-75 Kozizin S. (1997) Mal kredit da dorog Finansist No.3:15-19 Krediti dlya malogo biznesa EBRR, 2001 www.fund.kz/ebrr_c.html Kreditovaniye, 2001 www.kkb.kz/banking_re/sber/service/06_credit.asp Law of Republic of Kazakhstan from 19 July 1997 N 131-1 O gosudarstvennoi poddershke malogo predprinimatelstva(with amendments to this law in 10.07.98 № 283-1; in 26.07.99 № 458-1; in 29.11.99 № 488-1) Mahanov Z. (1997) O rossiyskoy federalmoi programme gosudarstvennoy podderzke malogo predprinimatelstva Economika Kazakhstana No.9-10:79-84 Mishin A. (1998) Investizionnaya podderzka malogo bisnesa PEZ No.5:61-70 Mukhamedghanov G. (1997) Sistema gosudarstvennoy podderzke malogo I srednego predprinimatelstva v promishlenno razvitih stranah Economika Kazakhstana No.9-10:116-121 Osnovniye prinzipi kreditovaniya MP, 2001 www.tacisinfo.ru/brochure/banksme/pzayav_m.htm Sahauyeva Zhanar, 2001, interview Tukayev A. (1998) Analys raxvitiya malogo biznesa v Kazakhstane Al Pari No.2:69-74 Turgulova A. (1999) Gde brat dengi na maliy busines? Finansi Kazakhstana No.8-9:115-118 Umbetov A. (1999) The role of banks in small business credit Al Pari No.2:29-33 Vilenskiy A. (1999) Finansovaya podderzka malogo predprinimatelstva Economist No.9:88-90 Yevropeyskiy bank rekonstrukzii I razvitiya, 2001 www.fund.kz/ebrr_c.html
VIII. Appendixes.

Appendix 1

Checklist.

Respondent:

Ms.Sahauyeva Zhanar, the chief accountant of “Oasis” company.

1.

Information about company.

For what purpose company was organized?

Sources of funded capital (relatives, savings,sponsors)?

In which sphere do you work (trade or production)?

How many employees do company has?

2.

Goalsof receiving a loan.