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IFC Supports Two New Laws in the Kyrgyz Republic that will Boost Micro, Small and Medium Sized Businesses


IFC in Washington DC:
Afshin Molavi

Phone:  (202) 458-5674

Fax: (202) 974-4384

E-mail:  
amolavi@ifc.org

IFC in Bishkek, Kyrgyz Republic:        

Aisuluu Bedelbayeva        

Phone:  996-312 610-650        

E-mail:
abedelbayeva@ifc.org        
       IFC in Moscow:

Rachel Freeman

Phone:  7-095 755 8818

E-mail:  
rfreeman@ifc.org


Bishkek, August 15, 2002—Financing options for micro, small and medium-sized businesses in the Kyrgyz Republic have improved considerably through new leasing and microfinance laws adopted with the support of the International Finance Corporation, the private sector development arm of the World Bank.  The new laws, passed by the Kyrgyz Parliament in June, 2002 and signed by President Askar Akaev on July 23, will support small and medium-sized enterprises as well as micro-entrepreneurs by increasing their access to credit for business expansion.

Experts from the Swiss–IFC Partnership Central Asia Leasing Project office in Bishkek, and IFC’s Southern Europe and Central Asia Department helped the Kyrgyz government craft both laws.  The leasing law provides the necessary legal backbone for banks and other financial institutions to conduct financial leasing operations.  The microfinance law provides a legal framework to create commercially viable microfinance institutions.


The Kyrgyz Republic deserves commendation for passing these important laws,” said Khosrow Zamani, IFC’s Director for Southern Europe and Central Asia.  “Not only will they have an immediate positive impact on SME and micro-enterprise growth, the new laws represent a significant step forward to building a favorable investment climate for IFC and other private investors in the leasing and microfinance sector, which should bring much needed capital to the region.”


Leasing—a key source of medium and long-term financing particularly for SMEs in countries with transitional economies – is an economically-efficient solution to the problem of asset acquisition.  Leasing improves access to capital for small business by basing their credit risk upon their projected generated cash flow, rather than from credit history or collateral.  Leasing often provides a much-needed boost to the small business sector, which is a key source of job creation in developing and transitioning economies.


The new law sets clear and transparent obligations and rights for all parties involved in leasing transactions and resolves current contradictions in the Kyrgyz civil code and outdated decrees on leasing, overcoming many of the legal issues that have held back the development of leasing in the Kyrgyz Republic, which accounts for less than 1 percent of the total credit portfolio in the country.


According to Kyrgyz Parliamentarian Temir Sariev, who presented the law to the Parliament, “We expect to see the birth of a vibrant leasing sector in Kyrgyzstan, both from banks and from independent leasing companies.  This step provides critical support to our small and medium enterprises, which are crucial to our country’s economic growth.”


IFC has long been a champion of leasing for developing and transitioning economies. IFC has advised 35 countries on developing leasing, and invested almost US$1 billion dollars in leasing operations in 50 countries over the last 30 years.


IFC experts also helped the Kyrgyz Republic craft the new microfinance law. IFC believes that well-managed microfinance institutions can—and should—be commercially viable so that financial services can be provided to the underserved over the long term, resulting in a substantial and sustainable increase in the volume and range of financial services for microenterprises.  Without the new microfinance law, current Kyrgyz microfinance institutions would not have the legal right to convert to microfinance banks.


Initial funds to support the leasing legislation were provided by the Japanese government who financed a study of the leasing market as well as introductory seminars with government officials.  The Swiss – IFC Partnership, launched in 2001 by the Swiss Secretariat for Economic Affairs (SECO) and IFC through its Technical Assistance Trust Funds program, funded technical assistance and field support.


The Swiss–IFC partnership aims to promote private sector development in the Central Asian countries of the Kyrgyz Republic, Tajikistan, Uzbekistan, and Turkmenistan.  One of the first projects of the Partnership is the Central Asia Leasing Project, which works closely with local governments to create lease finance opportunities.


SECO’s economic development cooperation program has four main objectives: 1) to help transitional countries reach the stage of development most favorable to growth and investment, 2) to mobilize private sector resources as a means of increasing the flow of finance to transitional countries, as well as technology transfer, 3) to improve productive and social infrastructure, 4) to achieve greater integration of developing countries in international trade.


Additional funding for work on some regulatory aspects of the microfinance law were provided by the United States Agency for International Development (USAID), which has been a key supporter of microfinance in the Kyrgyz Republic.  USAID provided the initial grant funds for three microfinance institutions in the country—all of which have graduated to operational self-sufficiency and are now raising funds from institutional investors.


USAID is the government agency providing U.S economic and humanitarian assistance worldwide for more than 40 years.  


IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives.  IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.  Since its founding in 1956 through the close of the last fiscal year on June 30, 2002, IFC committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries.  IFC’s committed portfolio at the end of FY02 was $15.1 billion for our own account and $6.5 billion held for participants in loan syndications.