1. GENERAL PROVISIONS
When used herein, the following terms shall have the following meanings:
«LEBs» mean local executive bodies;
«STBs» mean second-tier banks that are residents of the Republic of Kazakhstan pursuant to the laws of the Republic of Kazakhstan;
«Partner Banks» mean STBs identified by the State Commission on Modernization of Kazakhstan’s Economy as participants of this Programme and entities engaged in certain banking operations;
“SMBEs” mean small and medium business entities as defined in accordance with the laws of the Republic of Kazakhstan;
“Conditional placement of funds” means financing of partner banks for subsequent on-lending to SMBEs;
“Damu Fund” means «Damu Entrepreneurship Development Fund» Joint-Stock Company.
Title of the Programme
Programme for Financing Regional Business Projects Using the Resources of Local Executive Bodies and Damu Entrepreneurship Development Fund JSC
Main Programme Author
Damu Entrepreneurship Development Fund JSC
The Programme aims to enhance the implementation efficiency of regional entrepreneurship support and development programs
– financial support for SMBEs operating in priority regional economic sectors;
– ensuring a lower cost of credit for SMBEs in priority economic sectors;
– efficient utilization of Damu Fund's own resources towards financial support for SMBEs at the regional level;
– using Partner Banks' organizational and technical capacity for entrepreneurship financing.
The Programme is implemented through co-financing of regional SMBE projects by Damu Fund and LEBs through placement of funds with Partner Banks, on certain (target-oriented and restrictive) conditions, for subsequent onlending to SMBEs.
Policy of non-interference on the part of Damu Fund with partner banks’ internal procedures and credit process and their full liability for decision-making risks
LEBs’ budget funds and Damu Fund's own resources
2. TARGET GROUP
2.1 Legal Status of the Ultimate Borrower:
SMBEs compliant with the criteria established by the RoK laws shall be ultimate recipients of financial resources hereunder.
Loans extended to SMBEs shall be repayable at specified maturity, bear interest and be collateralized.
2.2 Purposes of Lending
Loans shall be extended to SMBEs towards purchasing new and upgrading existing capital assets as well as replenishing working capital in priority sectors approved by LEBs of each region.
2.3. SMBEs, which are officially registered in an oblast or a city enjoying the republican status where the Programme is being implemented and which submitted the projects to be implemented in such oblast or city enjoying the republican status for funding review, shall be eligible for financing.
2.4. The Programme shall not provide funding to SMBEs:
- with tax arrears and other past-due mandatory budget payments;
- with overdue loans provided by second-tier banks and non-banking financial institutions.
3. COFINANCING CONDITIONS
3.1. From their local budgets LEBs shall allocate to Damu Fund loanable funds to finance regional SMBE projects through the STBs’ branch network. Conditions of and procedures for allocation of loanable funds shall be set out in loan agreements entered into by Damu Fund and LEBs of each region.
3.2. Damu Fund shall allocate its own funds for financing SMBE projects in the region through the STBs’ branch network. The amount of the Fund's resources can exceed that allocated by the LEB.
3.3. Following the approval of the funding amount for the region, LEBs’ and Damu Fund's resources shall be placed with partner banks for subsequent financing of SMBE projects in line with the priorities of regional entrepreneurship support and development programs.
3.4. Damu Fund shall report to LEBs on the progress of disbursement of funds allocated to the Partner Bank. The procedure for, form and frequency of reporting shall be set out in the Loan Agreement between Damu Fund and LEBs.
4. PARTICIPATION OF PARTNER BANKS
4.1. A list of partner banks participating in the Programme shall be approved by the corresponding decision of the State Commission on Modernization of Kazakhstan’s Economy (hereinafter referred to as the State Commission).
4.2. Partner Banks and the amounts to be placed with them in each region shall be designated by LEBs of the respective region from among partner banks endorsed by the State Commission.
As far as the Fund's resources are concerned, the Partner Bank can be designated by the Fund's Management Board.
4.3. Terms and conditions of collaboration with Partner Banks shall be determined in accordance with the Loan Agreement between Damu Fund and the Partner Bank.
4.4. Partner Banks shall bear all risks associated with the funds allocated hereunder.
4.5. Partner Banks shall report to Damu Fund on the progress of disbursement of the funds allocated hereunder. The procedure for, forms and frequency of reporting by Partner Banks shall be set out in the Loan Agreement .
4.6. Damu Fund shall have a right to:
- inspect a Partner Bank's compliance with the requirements of the Loan Agreement when extending loans to SMBEs;
-cofinance regional SMBE projects if Damu Fund's resources are sufficient;
-request any additional information on the financed projects;
-request information on a Partner Bank's financial standing;
- monitor, in collaboration with LEBs’ and Partner Bank's representatives, projects including on-site visits. Monitoring frequency shall be set out in the Loan Agreement between Damu Fund and the Partner Bank.
5. CONDITIONS FOR PLACEMENT OF FUNDS WITH PARTNER BANKS
5.1. Damu Fund shall place LEBs' funds with Partner Banks on the following terms and conditions:
· amount to be placed: as allocated by LEBs;
· interest on LEBs' funds: to be calculated as follows:
LEB funding cost + Damu Fund's margin (ranging from 0.3% to 1.5% per annum)
The LEB funding cost shall not be lower than the weighted average yield on government securities for a respective quarter of the year.
· Partner Bank's margin: max. 5% per annum;
· tenor for placement with Partner Banks: to match the tenor for placement of LEBs' funds in each region;
· disbursement deadline: to be established by the LEB of each region.
· principal repayment condition: to match the conditions for raising LEBs' funds in each region;
· interest payment condition: to match the conditions for raising LEBs' funds in each region.
5.2. Damu Fund shall place its own resources for cofinancing purposes with partner banks on the following terms and conditions:
§ amount to be placed: as determined by the Fund's Management Board;
§ interest rate: to be approved by Damu Fund's Board of Directors;
§ Partner Bank's margin: max. 5% per annum;
§ tenor : to match the tenor established by the LEB, but not exceeding 7 years;
§ disbursement deadline : to match the deadline set by the LEBs;
§ principal repayment condition: to match the conditions approved by the LEBs, with a principal grace period not to exceed 24 months;
§ interest payment condition: to match the conditions approved by the LEBs, with an interest grace period not to exceed 12 months.
5.3. In the event of untimely disbursement of the allocated funds by a Partner Bank, such Partner Bank shall pay to Damu Fund a penalty equal to the RoK NB refinancing rate for an undisbursed amount of funds and for an actual period of use.
5.4. In case of inappropriate use of LEBs' and Damu Fund's resources hereunder by the Bank, the latter shall pay to Damu Fund a penalty of twenty five (25) percent of the inappropriately used amount.
5.5. LEBs' funds and Damu Fund's own resources shall be placed with partner banks subject to counterparty limits set for active banking operations for the partner banks.
5.6. Funds released as a result of repayment of SMBE loans previously extended hereunder can be used by the Banks for further lending to SMBEs in accordance with the terms and conditions hereof.
6. SMBE LENDING CONDITIONS AND PROCEDURE
6.1. Loans shall be extended to SMBEs towards purchasing new and upgrading existing capital assets as well as replenishing their working capital.
6.2. Basic financing conditions shall be as follows:
- Priority sectors shall be determined by the LEBs under each region's entrepreneurship support programme;
- single borrower limit shall be set by LEBs, but shall not exceed the single SMBE limit stipulated by Damu Fund's Charter;
- end interest rate for SMBEs shall consist of interest rates for Akimat's funds and Damu Fund's own resources and shall be determined as follows:
1) for LEBs' funds, the following formula shall be used:
LEB funding cost + Damu Fund's margin (ranging from 0.3% to 1.5% per annum) + Partner Bank's margin (5% per annum)
The end interest rate for SMBEs should be in line with the requirements of the Budget Code of the Republic of Kazakhstan and Rules for Execution of Republican and Local Budgets approved with RoK Government Order # 225 dd. 20/03/2007;
2) for Damu Fund's resources , the following formula shall be used :
Damu Fund's interest rate + Partner Bank's margin (5% per annum)
Damu Fund's interest rate shall be approved by Damu Fund's Board of Directors.
- loans shall be extended for ongoing businesses;
- the principal and interest grace period for a loan extended by the Partner Bank shall be determined and established by the Bank itself in line with internal procedures and provisions governing such bank’s lending operations.
6.3. No loans shall be extended to SMBEs towards the following purposes:
- acquiring a stake in the authorized capital of legal entities;
- repayment of past-due loans provided by STBs and other non-banking financial institutions;
- covering operational losses and other overdue payments.
6.3.-1. SMBE loans financed by Partner Banks or STBs as well as other financial institutions can be refinanced using Damu Fund's resources, but the amount to be refinanced shall not exceed 50% of the loan provided to the Partner Bank by LEBs and Damu Fund.
The procedure for refinancing using LEBs' funds shall be set out in the loan agreement entered into with each LEB.
This restriction shall not be valid in the course of initial disbursement of funds.
6.4. Other SMBE financing conditions shall be established by Partner Banks in line with their internal lending policies.
7. PROCEDURE FOR REVIEW AND APPROVAL OF PROJECTS TO BE FINANCED FROM LEBS’ ALLOCATIONS
7.1. A bank shall, on its own, select and review projects eligible under this Programme and Akimat's Resolution in line with its internal procedures and provisions governing lending operations.
7.2. In case of approval of projects by the Partner Bank's authorized body, the Partner Bank shall provide Damu Fund with a set of project documents. Within 2 business days of receipt of the set of documents, Damu Fund shall submit such documents to the Secretary of the Commission. A list of project documents shall be set out in the Loan Agreement between Damu Fund and the Partner Bank.
7.3. The Secretary shall provide the members of the Commission with a respective set of project documents for review at least 3 business days prior to the meeting of the Commission.
7.4. The Commission shall meet within 5 business days of receipt by the Secretary of the Commission of at least one project reviewed by the Partner Bank for financing, but at least once a month. At the meeting of the Commission, SMBE projects shall be presented by a representative of Damu Fund.
7.5. The Commission shall make a decision on final approval of SMBE projects for financing.
7.6. Within 2 business days of the Commission's approval the Partner Bank shall enter into corresponding loan agreements.
7.8. In its decision, the Commission shall state reasons for rejecting projects submitted by the Partner Bank.
7.9. Other terms and conditions of cooperation between Damu Fund, LEBs and the Partner Bank with regard to selection of SMBE loan applications, up to the disbursement, shall be governed by respective agreements.
This section sets out a procedure for review and approval of projects for subsequent financing using LEBs' funds. This amendment shall be valid until December 25, 2008.
As far as Damu Fund's resources are concerned, the decision-making procedure shall not involve the LEB Commission.
Amendments to Clauses 5.1 and 6.2 pursuant to Minutes of the Meeting of the Board of Directors # 6 dd. 10 September 2008 shall become effective on 01 August 2008.