ADBI Working Paper 904
Y. Dosmagambet et al.
8
mln, although the involvement of the entrepreneur’s own funds in the project is not
necessary. On the other hand, operating entrepreneurs can obtain a guarantee of up to
50% of the loan amount for up to 5 years with a maximum loan amount of KZT180 mln.
Finally, the “Damu” Fund also offers individually tailored guarantee plans for operating
entrepreneurs, guaranteeing 50% of the loan for amounts under KZT360 mln and 20%
for amounts over KZT360 mln to KZT1850 mln, although it reserves the loans for projects
in priority sectors. One policy recommendation for increasing the effectiveness of the
CGS in Kazakhstan is that the Damu Fund should not fix its guarantee coverage. A fixed
guarantee coverage ratio for all borrowers and banks, regardless of their
creditworthiness, will entail moral hazard. The guarantee coverage needs to
vary based
on the creditworthiness of the borrower (SME) and the banks (Yoshino and Taghizadeh-
Hesary 2018).
To
obtain a loan guarantee, the entrepreneur applies to the bank for a business loan,
then the bank, subject to the approval of the project, sends the entrepreneur’s documents
to the “Damu” Fund. Once the “Damu” Fund has made
a decision on the guarantee, the
entrepreneur, the bank, and the “Damu” Fund sign a guaranteed agreement and the
entrepreneur receives the financing from the bank. However, the “Damu” Fund’s website
notes that, after the “Damu” Fund’s decision making, the process of granting individual
guarantees involves the Regional Coordinating Council (RCC); the entrepreneur
forwards his or her project proposal for review and the RCC makes the final approval
decision on the entrepreneur’s project.
10
In addition, a financial agent, or a second-tier
bank, makes its own selection and decisions on funding entrepreneurs’ projects and can
establish special conditions of guarantee granting, such as the provision of additional
security, security insurance, the provision
of a personal guarantee, and so on.
