A. Reasons for undertaking research.

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

There are several reasons why our small business develops very slowly.
Firstly, there was not any optimal government strategy it support small
business. Government did not reveal the appropriate branch and regional
priorities for small business. Secondly, another problem is corruption.
As we know, officials can build huge barriers before entrepreneurs, for
example, different checks, problems with registration, and others.
Thirdly, a high taxes on enterprises.

Small enterprises pay 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 to conduct their own business. Lastly, in our
country there is no appropriate lending system. Banks do not want to
credit small business, because there is more probability that business
won’t go well, also there is big problems arises with preparing
necessary documents in order to receive a credit, another problem is
liquid enough pledge. So we can see, that enterprises collide with many
problems when they are trying to receive a credit.

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

B. Research structure.

Our research structure:

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

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

Terms for receiving a credit. You will read about necessary documents,
required in banks and difficulties with preparing these documents, about
meeting with representative of credit department, about pledge and
interest rates.

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

C. Research methodology.

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

Necessity to credit small business.

First of all, let us define the notion of small business. According to
the existing law, to small business refer new and working enterprises,
in which number of employee not more than 50 and total cost of assets
not more than 60 000 calculation indexes ( 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)). Thus, for today maximum
amount for assets of small enterprises cannot exceed 46 500 000 tenge.
Small and middle business – the basis of market economy, it overcomes
monopoly, provide employment (see Appendix 2), provide revenues from its
activity to government, provide more innovations than other forms of

It is important to credit small business. Most of small enterprises had
to limit their activity because of lack or inaccessibility of credits.
Thus, now the weakened business cannot carry out its functions, which is
create new workplaces, form middle class, develop trade and production,
and which is effective especially in sphere of agriculture, tourism,
rendering of services to the population, etc. Therefore, financing and
investing support is the most important for effective development of
small business.

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

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

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

Promotion of stimulation of second tier banks;

Continuation of budget and second tier banks financing of projects;

Development of venture financing;

Encouragement of credit partnerships creation, mutual insurance
societies (Finansirovanie I kreditovaniye subyektov malogo biznesa,


Thus, we can see, that it is very important to develop investing and
financial support of small business in Kazakhstan. 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.


Finansirovanie I kreditovaniye subyektov malogo biznesa, 2001

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 №

Goals for receiving a loan.

There are many goals pursued by entrepreneur when he is asking for
credit, but not for all purposes it is given. For example, EBRR gives
credit for increase in working capital, investments like purchase of
real estate, etc. (Krediti dlya malogo biznesa EBRR , 2001),
Kazkomertzbank offer credit for increasing turnover, increasing working
capital for further growth, expansion of production or volume of
services, purchase of machinery, equipment, row materials, improvement
of manufacture, purchase, construction and maintenance of real estate,
and other capital investments (Kreditovaniye, 2001).

In our survey, we conducted an interview with chief accountant of
“Oasis” company. This firm was organized in 1997 and busy in selling
wholesale trade of medicines, the authorized capital was formed from
personal savings, and number of employees is equal to 12. This company
took a credit from Centercredit Bank in year 2000. They took a credit in
Centercredit Bank because firstly, they have served in this bank and
secondly, there was program on supporting small business, which were
conducted by EBRR. The goal of receiving a credit was increasing
turnover. With this credit, the company gained 30% income — they made 3
contracts on the total amount of $19,000. Thus, the company got profit
from receiving a credit (Sahauyeva, 2001).


Thus, we can conclude, that there are many reasons for the enterprises
to give an application to the bank in 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 to increase turnover. In our
case, the company took credit exactly for this purposes (increasing
turnover), and gained a profit.


Krediti dlya malogo biznesa EBRR, 2001 HYPERLINK

Kreditovaniye, 2001 HYPERLINK

Sahauyeva Zhanar, 2001, interview

Terms for receiving a loan.

A. Necessary documents

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


Constituent documents

Registration certificate

Statistical card

Confirmation of RNN by RNI

Borrower form and chiefs biographical data

Financial reporting for the past 3 years


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).

These are the main documents, demanded by banks, but representative of
credit department of the bank may require extra documents, depending
upon financed project (Sahauyeva, 2001).

B. Difficulties with preparing documents for receiving a loan.

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

Nowadays there are many organizations, which helps entrepreneurs to make
up different kinds of documents like financial statements, pledge
documents, which are demanded in banks, but there is absolute no
guaranty that with this financial statements you will receive a credit,
simultaneously services of these firms rather high.

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

This diagram shows in what level each factor influence on decision of
the bank, when it is giving a credit to the enterprise. 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 best way. 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
details later.

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

Another problem is getting sanction for realization a project. This is
due to difficulties with receiving confirmation in different state
organizations. There are several supervising organs whose corroboration
you have to receive, but they are varying depending on the project

Ministry of Ecology and Natural Resources regional representations

Sanitary-epidemical services

State Supervision of architecture and construction

Standardization and certification organs

Fire services

Custom services (Dauanov I., 2000)

Mainly, because of imperfectness of our organs, and especially due to
corruption, getting through the expertise takes 6 or more months.

C. Meeting with representative of credit department.

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

this. Credit interview is often held in bank or in enterprise office. By
the way, entrepreneur should always offer to visit his office, and not
only because owner is proud to present his business, but also to present
additional 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 about business (Sahauyeva, 2001). Representative in his
turn has to be in connection with borrower, keep abreast with the needs
of the company, should offer bank in order to solve financial problems
of the enterprise, and should offer to submit application for a loan.
Thus the representative has to understand how business works, risks
connected with making deals with this company, keep up that everything
is legal, and look after how borrower spend credit (Osnovniye prinzcipi
kreditovaniya MPS, 2001).

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

D. Pledge.

1. Required pledge.

Banks have to ensure their credits, which are given to entrepreneurs in
case of bankruptcy. Thus, all banks demand pledge maintenance from
borrowers. Banks accept as a pledge property, guaranties of other legal
persons, and other types of pledges. For instance, European Bank of
Reconstruction and Development accept real estate, motor vehicles,
personal property, enterprises’ property and goods, which are in
business (Yevropeyskiy bank rekonstrukzii I razvitiya, 2001). In our
considered “Oasis” company, the pledges were real estate of the founders
and commodity stocks. 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 a credit on ordinary terms, offered by
banks. This is due to most enterprises are not able to provide a pledge
required by banks or their pledge is not liquid enough.

There are several problems, which are arising with providing a pledge to
bank. The most important is illiquidity of the pledge that if offered by
enterprises. Banks accept movable and immovable property, which is owned
either by enterprise or entrepreneur, guaranties of other legal persons,
marketable securities (Kreditovaniye, 2001). Another important thing is
that banks usually underestimate cost of the pledge. And the last thing
is registration of documents confirmed your ownership of the pledge.
Banks, when they are giving out a credit, demand these last two items.
Thus, if the estimation of the pledge that is carried out by experts of
the bank is free of charge, then confirmation of ownership is carried
out at the expense of the businessman. (Dauranov I., 2000).

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

Thus, it is very difficult to receive a credit. You may have problems
with providing a liquid pledge, demanding by banks. Even if your
business goes well and profitable, your company could just have not
enough assets to offer it to the banks, moreover, you are asking a loan
to buy an equipment, to increase your assets, but bank gives loans only
to those, who already developed. Thus, there is a situation, that rich
become richer and poor become poorer.

E. Interest Rates and Repayment.

Now, let us consider interest rates, which enterprises have to pay as a
payment to the banks for lending money. For example, interest rates of
NSBK are determined in dependence with concrete case and project:

On credits in national currency – from 24%

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

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

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

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


Thus, we can conclude, that entrepreneur has to prepare many documents,
prepare to meeting with executive of credit department of the bank, have
a liquid pledge, and have enough assets to 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 on supporting small
business lending and enterprises have to discover first, which bank is
more suitable and then go and find out its personal specific terms.


Dauranov I.(2000), Maliy bisnes: problemi oformleniya kredita, Al Pari

Kreditovaniye, 2001 HYPERLINK

Kreditovaniye, 2001 HYPERLINK

Osnovniye prinzipi kreditovaniya MP, 2001 HYPERLINK

Sahauyeva Zhanar, 2001, interview

Yevropeyskiy bank rekonstrukzii I razvitiya, 2001 HYPERLINK

Data Analysis.

Now we will summarize all research paper.

It is very necessary to develop lending system in Kazakhstan. There are
many reasons for this: small business creates new workplaces, form
middle class, develop trade and production, and it was notices that
mainly small business develops and invents new goods and services,
because in that way small business has a chance to be marked and
successfully manage the business. In order to carry out these functions,
enterprises needs money to increase its turnover, employ more workers
for development, buy new equipment, buildings, to make capital
investments in other companies, etc. For these purposes enterprises are
usually demanding 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 was fulfilled by this purpose of the
company and may be this was one of the reasons of receiving a credit.

There are many documents, demanded in banks from companies, which are
trying to receive a loan. But the most important for decision-making is
financial statements of the prospective borrowers. Many firms conduct
double-accounting, this means, that they give one variant of the
financial statements to tax commission and another to investors and
banks. It is easy to understand why enterprises do so, they are trying
to survive and cheat, and there are many reasons to do this, and one of
them high taxes. But, banks know that enterprises conduct separate
accounting for them and try to prevent it. For instance, Bank
Centercredit, which lent money to “Oasis” company, demanded annual
financial statements of the company, which were given up to the tax
commission. It is difficult to run a business so, that its financial
statements would satisfy banks and enterprises tax aversion.

Another important thing is meeting with representative of credit
department of the bank. And it is necessary that your business left a
good impression. You will have to show your business, show how it works,
your equipment, employees, offices. Each enterprise have o meet with
representative if company really wants to receive a loan.

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

Important item in receiving a loan both for enterprises and banks is
interest rates. As it is expected banks demand too high payment for
lending money. Interest rates are too high and most enterprises do not
asking for a loan because there will come a day and you will have to pay
everything back with high payment for the banks services. Nevertheless,
not everything is so bad, there are special programs of supporting small
business, which offer lower interest rates, and this is a real chance
for enterprises. However, arises another problem: there are too many
firms, desiring to receive a loan on lower interest rate. Thus, increase
control over maintenance, financial situation of the company, etc.
Repayment date is also important, but banks usually make a personal
schedule for repayment. Usually there are monthly payments with
increasing interest rate.

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


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

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

Thirdly, banks should stop working only with “big people” with “big
money”, but also help small enterprises to enter into market and freely

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


Blinov A. (1993) Razvitiye predprinimatelstva Economist No.6:70-73

Dauanov I. (2000) Maliy biznes: problemi oformleniya kredita AlPari 5:

Ershova G. (1995) Podderzka malogo predprinimatelstva Finansi No.2:17-18

Finansirovanie I kreditovaniye subyektov malogo biznesa, 2001

Isabekov A. (1997) Problemi razvitiya malogo I srednego biznesa v
Kazakhstane Economika Kazakhstana No.5-6:120-123

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Krediti dlya malogo biznesa EBRR, 2001 HYPERLINK

Kreditovaniye, 2001 HYPERLINK

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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 №

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srednego predprinimatelstva v promishlenno razvitih stranah Economika
Kazakhstana No.9-10:116-121

Osnovniye prinzipi kreditovaniya MP, 2001 HYPERLINK

Sahauyeva Zhanar, 2001, interview

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Yevropeyskiy bank rekonstrukzii I razvitiya, 2001


Appendix 1


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

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. Goals of receiving a loan.

2.1. How do you think, do small enterprises need to be credited?

2.2. How company used a loan?

2.3. What amount of gain did company received from the loan?

3. Loan.

3.1. In what bank do you prefer to receive a loan?

3.2. What liquid pledge did the company provide?

3.3. What interest rates did the company pay?

3.4. In which terms the company can made a repayment (monthly, quarterly
or in the certain date)?

Appendix 2

Table #1

Regions For the 1 October 1997 For the 1 April 1998

Parity of small business wages and region’s (%) Parity of small
business wages and region’s (%)

Akmolinskaya 64.5 74.9

Aktubinskaya 53.8 46.0

Almatinskaya 91.5 75.9

Almaty 80.2 70.9

Atirauskaya 52.2 50.3

Zhambilskaya 40.3 36.9

Karagandinskaya 38.3 35.6

Kizilordinskaya 45.2 41.9

Kostanayskaya 75.7 63.8

Mangistauskaya 75.2 66.7

Pavlodarskaya 63.5 55.9

Total 680.4 618.8

(Source: Tukayev, 1998).


Small Business


Graph #1

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