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Financial system, and sme financing in KazakhstanAbstract
Kazakhstan remains a resource-dependent country, and the overall economy experiences
external commodity price volatility. Oil export revenue exerts a positive effect on the economic
development of oil-producing countries; however, depending only on oil revenue will make the
economy vulnerable to oil price shocks, especially in the case of an oil price recession. This
is forcing the Kazakhstan Government to pursue industrial diversification to accomplish
sustainable and balanced economic development, particularly concentrating on the
diversification and expansion of the SME sector. Second-tier banks remain SMEs’ main
source of financing. Due to the higher risks associated with SMEs, they have to borrow money
at high interest rates that endanger their growth. Since the global crisis in 2008 and the
adoption of the Basel capital requirement, banks have become more reluctant to lend funds
to SMEs. The government’s use of a credit guarantee scheme (CGS) relies on the willingness
of second-tier banks to lend to SMEs, since they decide which SMEs to lend
to and the effective interest rate. Second-tier banks, on the other hand, are dependent
on the oil price volatility. This paper examines the status of the CGS in SME financing
in Kazakhstan. In addition, it provides an empirical analysis using the structural VAR method
that shows that the creditworthiness of the whole financial system in Kazakhstan is dependent
on oil prices. Moreover, there is an effect from oil price volatility on currency value change,
which also influences the financial situation of SMEs.
Keywords:
small and medium-sized enterprises,
SMEs, credit guarantee scheme, oil price,
Kazakhstan
JEL Classification:
G01, G32, Q31
ADBI Working Paper 904
Y. Dosmagambet et al.
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