International Finance Corporation (IFC)

International Finance Corporation of the World Bank (IFC)

• The Kyrgyz Republic joined IFC in 1992 and holds 0.07% of its equity.
• IFC’s liaison office in Bishkek was opened in 1997 and is co-located with the World Bank.  The office is staffed by IFC Country Officer, Gulnura Djuzenova, and a Team Assistant, Anara Jumalieva, with oversight by IFC’s Regional Representative, Gorton De Mond Jr., based in Almaty, Kazakhstan.

IFC’s Strategy and Priorities in the Kyrgyz Republic

IFC’s strategy reflects the development priorities and needs of the country and is closely integrated with the World Bank Group’s country assistance strategy (CAS). IFC considers the existence or absence of alternative suppliers of investment resources and advisory services; and the need to carefully channel resources in order to enhance its impact. The strategy focuses on institution and capacity building, through investment and technical assistance, that will promote private sector development, especially SMEs, and support the transformation into a market based economy.

The current portfolio of IFC in Kyrgyzstan is $13 million (committed as of May 1, 2007) and the amount of total investments made to Kyrgyz economy since 1996 reached $60 million. The largest investment in the portfolio was the Kumtor Gold Mine, with additional investments in a packaging plant (Altyn-Ajydar) and three financial sector projects (Demirbank, KICB and FINCA). In 2002, under the Small Enterprise Fund (SEF) procedure, IFC has disbursed a direct investment into a pasta plant (Akun) in the amount of $1.4 mln. Also, in May 2002 IFC Board approved microlending facility for Central Asia, with IFC investment of $45 mln. The same year, Central Asia Small Enterprise Fund was set by IFC with other lenders, the amount of IFC investment to this fund is $2.5 million.

In 2004-2006 IFC has actively continued its investment and technical assistance program in KR. The projects have been approved and investments have been done to the Kyrgyz Investment Credit Bank on providing credit line for SME financing for $2.5 mln dollars, to Bai-Tushum Microfinance Agency for financing loan and equity investments for $2.2 mln, provided credit lines under the framework of MSEF joint project with EBRD to AKB Kyrgyzstan for $1.5 mln; Ineximbank for $1.5 mln and Kazkommertsbank for $2.0 mln. The second loan was provided to Altyn-Ajydar enterprise for $1.4 million dollars for expansion and paper production. In addition, IFC has disbursed the second trance of $1 million to Akun milling plant for expanding pasta production. 

IFC’s strategic goals in the Kyrgyz Republic

• Develop the financial sector, including provision of credit lines for local commercial banks, institution-building in the area of capital markets including development of a leasing and micro-finance companies; and, provision of technical assistance;
• IFC will continue to look for appropriate mining investments in the country;
• Support for SMEs, mainly through financial intermediaries;
• Encouraging the development of private sector infrastructure projects. IFC's focus will be on helping the Republic to develop its hydroelectric potential;
• Developing tourism sector. IFC will continue to provide assistance in the preparing a strategic framework for tourism;
• Developing the agricultural sector, by encouraging foreign joint ventures and supporting local agri-processing enterprises;
• IFC is looking to identify investment opportunities in network operators, software developers or component manufacturers, as privatization of the national telecom utility is undertaken;
• Business environment. IFC is providing through the Swiss funded IFC Private Enterprise Partnership (PEP) advice to the government on needed improvements in the business environment for M/SMEs;

Specifically, IFC’s strategy is focused on the following areas:

Promoting Micro/Small and Medium Enterprises (M/SMEs) by:

• Institution-building for financial intermediaries that can become effective conduits of IFC funding to microenterprises and SMEs;
• Providing direct financial assistance through pilot initiatives, which can have a demonstration effect and are replicable;
• Creating sustainable micro-finance facilities such as FINCA, and supporting the development of new microfinance intermediaries;
• Improving the business environment through identification of impediments and targeted technical assistance to support best business practices.  

Support for the above activities includes investment capital to encourage M/SME growth and development and technical assistance provided either directly by IFC or through the Private Enterprise Partnership, IFC’s technical assistance arm in the former Soviet Union.

Assisting the Agri-business Sector by:

• Identifying promising agri-processing entrepreneurs, and providing technical assistance on marketing, business plan development and project implementation, in order to facilitate access to investment capital. While many donors have focused on this sector, IFC is specifically targeting the identification of major international buyers of agricultural products and working to backward integrate, so as to support the growth and development of local agricultural producers capable to supply international markets.

Strengthening the Financial Sector through:

• Technical assistance and investment for existing institutions, as well as for new institutions that are capable of providing financial intermediation, based on international best practice standards. Past IFC support has been provided through investment in Demir Kyrgyz International Bank and in Kyrgyz Investment and Credit Bank (KICB), a joint-venture with the Aga Khan Fund, two IFIs and a small shareholding from the Government. Support for two smaller domestic banks is currently being reviewed.
• A regional Central Asia Micro and Small Enterprise Facility to be intermediated through local commercial banks. This joint project with EBRD was approved by IFC in May 2002. The total facility is US$ 153 million credit line for micro/SMEs in Central Asia, with IFC providing $45 million and the Swiss Government (SECO) providing $3 million (the latter to be used only in the Kyrgyz Republic). In addition, there will be $18 million technical assistance for training, capacity building and supervision, the majority of which is funded by USAID. This facility finances primarily small loans in the range of $200 - 50,000; however, there is flexibility to extend loans up to $250,000. IPC GMBH Consulting Company (Germany) will implement technical assistance for the participating banks. Credit lines will be provided in varying amounts, depending on the financial capacity of each institution. The small loans may be extended by local banks either in US dollars or Kyrgyz soms. Approximately $13 million out of joint IFC/EBRD funds is expected to be disbursed in the Kyrgyz Republic. In 2003-2005 IFC has provided credit lines to local banks as AKB Kyrgyzstan, Ineximbank
  and Kazkommertsbank for the total amount of $5 million. IFC also provided funding to FINCA to expand a technical assistance to facilitate its conversion from an NGO to a licensed microfinance institution. IFC assisted the government to develop the regulatory framework for microfinance, including a draft law for microfinance institutions. The Microfinance Law was approved by the Parliament on June 11, 2002 and was introduced by Presidential Decree in July 2002.
• Development of leasing, including small business leasing, through technical assistance to create the appropriate regulatory framework, expand public awareness of leasing, and build the capacity of local lessors. IFC is now assessing the next step of this work and plans to provide financial support to create model leasing institutions in the region. A new law on leasing and amendments to the tax code were drafted with IFC assistance and adopted by the Kyrgyz Government and Parliament during the recent two years. 
• At the end of 2004 IFC has approved a CA Leasing Facility of about US$35 million including Kyrgyz Republic as well.  In 2005, IFC has launched the second stage of technical assistance leasing project for 3 years. IFC is providing targeted assistance to selected financial institutions in leasing activities, also providing assistance in developing legal framework for leasing activities.
• In 2005 IFC launched a Central Asian Regional technical assistance project to improve legal, regulatory and tax framework for Housing Finance and for creating favorable conditions for housing finance development. In mid 2006 IFC PEP Cemtral Asia Primary Mortgage Market Development project team has completed regional studies on legal framework and existing obstacles for successful development of housing finance in Central Asia including Kyrgyz Republic. The presentation of the results of studies and subsequent recommendations has been done to the Government in July 2006. IFC PEP has been discussing with the Government the next steps on housing finance development on results of the studies. In 2007 the IFC PEP project team has started the second stage of the project aimed at providing assistance in improving enabling environment, strengthening institutional capacity of financial organizations involved in housing finance, assisting the Government of KR in improving the housing policy including development of Housing Code, laws and legislation related to housing finance.
• Provision of equity capital. A regional early stage equity investment fund (Central Asia Small Enterprise Fund, SEAF - CASEF) was set up in 2002 by IFC, SECO, and SEAF, a leading US manager of small equity funds to support Kyrgyz entrepreneurs to grow their businesses. The total capital of the fund is $8.6 mln, and IFC’s investment is $2.5 mln.

Developing Tourism through Technical Support:  

• Tourism has potential for SME development, as well as for foreign exchange earnings. IFC continues to provide assistance to develop a strategic framework for tourism and technical support for tourism development. The recently completed study done by IFC Consultant outlines a strategy to institutionally strengthen tourism marketing for the Kyrgyz Republic, as well as curricula building for education at both the university and vocational school levels. As a follow up of these studies, the Swiss Government has decided to finance the practical implementation of the studies’ recommendations and will provide funds for the second stage of this project in 2005. Significant increases in international tourism will, however, continue to be limited until more regional cooperation in tourism is developed through Central Asia. Because most tourism projects will be less than $5 million, IFC will indirectly fund such projects through credit lines provided to local banks for on-lending.

Expanding Investment Opportunities in the Mining Sector:

• IFC was an investor in the country’s largest gold mine, Kumtor, a project with significant impact on foreign exchange earnings, GDP and contribution to the state budget. IFC continues to seek other investment opportunities in mining, although commercial prospects are limited, given the relatively difficult regulatory framework and geographical isolation of the country from major markets.

Assisting Privatization Opportunities through: 

• Investigating opportunities to support the privatization of major SOEs and local monopolies, such as Kyrgyztelecom. The IFC is closely coordinating with IDA on the power distribution sector and could review opportunities for investment in public-partnerships with international investors through concession or other types of operating arrangements.