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The 5th Business Forum of Conference on Interaction and Confidence Building Measures in Asia (CICA), 10-11 of November 2016, Astana, Kazakhstan

The "Damu" Fund shapes a middle class in the country

May 26, 2016 6:52 pm

To obtain a loan under 8.5%. Just recently, entrepreneurs would find it fantastic, today thanks to the work carried out by the "Damu" Fund, such loan conditions are becoming a reality. Kanysh Tuleushin, Chairman of the Board of JSC "Entrepreneurship Development Fund "Damu", using concrete examples explains how to obtain such loan, as well as what other programs are planned to be launched and how an entrepreneur could puzzle out them.

- You said that one of the challenges facing the Fund is to cheaper loans for SMEs. At what expense will be possible to achieve this?

- Within three months, we are actively toured regions and met with entrepreneurs. They all have named several actual problems that they face in obtaining credit for business. I will highlight a few of them: high interest rates on loans extended by banks to businesses, short term loan, the lack of collateral or the illiquidity, low activity of banks in rural areas, the reluctance of banks to lend to start-up projects.

Let me give some figures to make it clear. In 2015, in the lending market, the average rate on loans was 14.3% in January 2016 - 20.7% per year, in February 2016 - 16.6%, and in March it was 16.3%. Lowering the interest rate occurred due to strengthening of tenge, when the course of the trio "dollar - tenge - ruble" was aligned. In addition, the growth of deposits in national currency had begun and in general strengthened the credibility of the tenge. Nevertheless, the situation is far from ideal. For example, in the manufacturing industry, the average rate on loans equaled to 16.3% in 2015, in January 2016 - 29.3%, in February - 18.9%, in March - 17.9%. It is understandable that such interest on loans burdensome for business.

Against this background, we decided to send about 24 billion tenge in the regions for lending to small and medium-sized businesses. This special-purpose loans, which take into account the specificity of each region. For example, in Aktobe region, priority will be given to start-up projects of young entrepreneurs and entrepreneurs in rural areas. In Astana, the target group - new entrepreneurs. Most importantly, in all areas priority will be given to entrepreneurs in remote areas and villages. The average rate on the loan will amount to 8.5% per annum with a term up to 7 years and without sectoral restrictions. Such unprecedented conditions are absent in our business lending market. For our part, we understand that the fund rate of return will be reduced. We are taking this step advisedly, because the Fund aim is not to provide excess profits, but provide entrepreneurs with cheap, long and accessible credits.

-When will the financing of the regions start?

Businesses lending already have started in Aktobe, Mangistau and Almaty regions. As far as this summer, the funds of the "Damu" Fund and Akimat will be delivered to regional banks for other regions.

- Is it possible to reduce the usual response time of applications for loans to entrepreneurs in the banks?

- Yes, this problem is actual for entrepreneurs. Sometimes they have to wait for the decision of the bank up to 2-3 months. During this time they repeatedly travel to the bank, bring some inquiries, reports or missing documents. This will not guarantee that the decision will be positive. As a result, businesses are losing time and missing opportunities. At present business processes run rapidly, at an accelerated rate, so entrepreneurs need to have time to react to the market and make quick decisions. This is how the "Damu Blitz" technology for microbusinesses appeared with less stringent and simplified procedures for obtaining a loan. As a basis for this technology, EBRD’s experience on extending a credit to microbusiness in the late 90s was applied. It was a successful experience, and that time entrepreneurs from the village were able to set up small business for small loans. We have improved the program in terms of creating a unified approach of banks when considering the application and trained professionals. As a result, the new technology will shorten usual response time for the loan - from 3 to 7 days.

"Pilot" was held in Almaty and Almaty region in three second-tier banks. Interest rate for business at 14% per annum. For entrepreneurs of Astana and Almaty will be acceptable microcredit up to 60 million tenge. For other regions, the loan amount is provided up to 30 million tenge. Loan term - up to 84 months. In addition there are microstart- loan up to 20 million tenge for a period up to 60 months for investment and up to 36 months for working capital financing. In general, it is already 56 projects approved.

For example, Alfabank made a decision on granting a loan within 6 days for a shoe company BOROS of entrepreneur Mikhail Vorogushin. This is a term from application until the positive decision of the credit committee. Loan amount - 6 million tenge. Part of the loan the company used for refurbishment, and the rest - for working capital. Entrepreneur was able to buy raw materials in bulk, which affected the cost of men's, women's and children's shoes, which he produces.

It is good that start-up projects obtain loans by "Damu Blitz". LLP "Profhim", which produces household, automotive, professional chemistry for cleaning received a loan in the amount of 20 million tenge. Due to the loan, small company purchased automated bottling line. Prior to that everything was done by hand, respectively, the process was a long one. Thanks to automated bottling line time was reduced three times. In addition, the studio has received a guarantee from the "Damu" Fund - 85%, which constitute to 14.6 million tenge.

There are many examples, and they prove that disburse a loans to business for the shortest time - is possible. We plan to introduce the new technology in all regions of the country.

- It is not a secret that the one moment which is asked to eliminate by entrepreneurs - paperwork. What is being done in this direction ?

- Most recently, the Fund put into operation an information system “bpm’online sales”, which allows you to send a request for a guarantee through e-government and within five days to get an answer. The Fund has already approved the first entrepreneur’s application for a guarantee submitted through Egov portal.

As an example, I will tell you how it happens. April 28, 2016 at 19:00 young aspiring businessman from Astana by means of portal Egov sent application for a guarantee on his project of opening coffee shops. The loan under the program "Astana ZhasStart» at the rate of 7% approved by the capital branch of Bank KassaNova upon condition of the "Damu" Fund’s guarantee in the amount of 85%. Through the portal the client submitted application, immediately gave his consent to personal data collection. Through automated queries data from public databases gathered, such as IE registration information, information about the absence of overdue on taxes. From Egov application fell into our bpm'online system, and among the managers of the Fund’s branch in Astana, chosen by the client, performer was determined automatically. The Fund manager has requested documents on the project from the bank, formed a petition and sent the draft to the head office of the Fund. Throughout all stages of consideration, on a client’s personal account in Egov portal notifications arrived, such as "Your statement has arrived", "your project is under consideration in the Fund." Members of the credit committee, without gathering, each in their workplace considered the draft and made their decision on it, and put the "for", "against", "abstained". All of them were "for", and the secretary has formed an electronic version of the protocol. After its signing, the client has received notification of application approval. The system automatically generate a letter of guarantee on the basis of the committee report, after which the Fund’s manager sent it to the bank and the client. 4 day went to make decision by the Fund, while the standard is 5 days. Upon receipt of the loan agreement from a bank system will automatically generate a guarantee agreement. The customer will be notified about necessity to visit the the "Damu" Fund’s office and sign a guarantee agreement.

Meanwhile, applications from Atyrau and East Kazakhstan region already arrived for consideration.

- What kind of new programs will be introduced in the near future?

- One of the new programs related to micro-credit. During our trip to the regions, we have seen a special need of the villagers in small loans for the purchase of livestock, putting in the slaughterhouse, meat processing for further sale to a large shopping center. Such a system is well built and debugged in the South Kazakhstan region. Therefore, we would like to extend micro-credit mechanism in other regions of the country. For this aim, we allocate one billion tenge as pilot one. Thus, 75% of these funds will be allocated to rural areas to support the villagers and the agricultural sector.

Another billion tenge will be allocated for the factoring program for those entrepreneurs who have accounts receivable. These are the companies that participate in the tender, win it, start to deliver products, but they only receives partial payment under the contract. Other part of payment under the contract occurs later, and it is often delayed. Therefore, it freezes accounts receivable, despite the fact that the entrepreneur have to pay salaries, purchase raw materials, etc. At present, the lack of funds - debit - will be provided by the preferential lending as part of factoring.

We also have noticed an upward trend in purchase and sale of franchises, both foreign and domestic. All over the world the franchise market is very popular. In Kazakhstan this figure is several times less and constitute to $ 2 billion. Nevertheless, once again, we see a lot of interest from entrepreneurs to acquire franchises, because it is ready business-solution. We have catering and services franchise, such as dry cleaning, beauty salons, supermarkets and taxis. According to our requirements, the maximum amount purchase the franchise - no more than 80 million tenge with the maturity of 7 years. This is a good time and the amount at which an entrepreneur could open several franchise outlets, thereby to develop the existing business by network of creating brand. The financing is made in tenge and has no sectoral restrictions.

We have already allocated the pilot pool of money in the amount of one billion tenge to see how these funds will be in demand. Our rate will develop here two times lower than the market. The Fund has already provided 250 million tenge each to RBK Bank and the "Astana" Bank. In other words, today entrepreneurs could submit applications to these banks.

Among the novelty, I could also mention about providing subsidies for working capital. It is important for entrepreneurs. Additionally, a guarantee program "Damu-Optima" that we are going to start, will cover not only the priority sectoral areas funded under the "Business Roadmap -2020», but also trade, services, catering.

- Indeed, the "Damu" Fund has many support programs, including non-financial. How could an entrepreneur puzzle out in them, select the most appropriate and necessary tool for himself? How many people are appealing to you for consultations each month, for example?

- The entrepreneur, whether he is an acting or just planning to open a business apply to Entrepreneurs Service Center – our ESC. On average 7700 customers apply for ESC per month. On average 12 thousand service per month rendered to them. It is data from 2016.

At present we are developing a new type of services, the so-called supermarket of state support tools specifically for ECS. The principle is as follows: the businessman might only have an idea with which he comes to ECS. There are consultants, who provide all the possible embodiments of his ideas and help to choose best suitable tool for him from all available set of support tools. In the future, our consultants will accompany the entrepreneur up to obtaining a bank loan.

- What is the effect from SME support: jobs saved, how many new jobs created, to what extend the share of SMEs in the economy has increased?

- Generally, since 2010 the "Damu" Fund has provided financial support to more than 20 thousand of entrepreneurs (20 604) in the amount of 2.3 trillion tenge. This means that every 4th tenge of bank loans distributed to small and medium business issued by the "Damu" Fund (for 2010-2015.). 28% from them - borrowers of the "Damu" Fund, operating in the manufacturing industry.

Enterprises that have received support within the BRM-2020, realized products for the amount of 5.1 trillion tenge, paid taxes in the amount of 412 billion tenge. In comparison 412 billion tenge – is more than the budget of Almaty for 2016 (370 billion tenge) - the city the Republican significance and one of the country's major cities. 217 thousand jobs saved as well as 67 thousand jobs created. Just imagine 67 thousand new jobs -it is the population of cities such as Kentau, Stepnogorsk or Kapshagay.

Thus, by funding second-tier banks, we can position ourselves as a mini-EBRD in Kazakhstan. Small businesses will be able to reduce the loan debt burden- respectively, the number of entrepreneurs will increase.

In addition, today the "Damu" Fund could be entitled as an architect of government programs: we targeting different customer base, observe what customers have to go to the growth, how they can develop and move from a small segment to the middle, from the middle – to the large businesses.

Such architecture indicates that the "Damu" Fund forms the middle class in the country. We are helping citizens of Kazakhstan to realize a dream - to have their own business. However, your own business - it is not fun, it is everyday work and high responsibility not only for themselves but also for those around the business owner - family, friends, relatives and the people who work for him.