Russian-Kyrgyz Development Fund fails to live up to expectations

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BISHKEK (TCA) — The work of the Russian-Kyrgyz Development Fund (RKDF) has been criticized not only by MPs and businessmen but also by President of Kyrgyzstan Almazbek Atambayev. If the RKDF does not work in the coming months, it would be necessary to make staff decisions, Atambayev said at a recent news conference.

There is an important reason for the discontent because the Fund’s loan portfolio represents a meager amount.

The RKDF has a $500 million capital, of which $300 million has already been transferred by Russia. The Fund is engaged in the financing of projects designed to upgrade and modernize the economy of Kyrgyzstan. Funds are on-lent through two state banks — Ayil Bank (Agricultural Bank) and RSK Bank. At the end of 2015, an agreement with the KICB commercial bank was signed on joining the program.

Loans are granted for five years at 12% in soms and at 7% in US dollars. One of the main requirements is the sharing of risks, and applicants have to possess 20% of the total project cost, and it can be not only money but also the property.

Running slowly

RKDF Board Chairperson Nursulu Akhmetova believes that the Fund is running slowly because the Russian side has unilaterally established a secretariat, which substituted the Board and makes decisions alone mainly hindering the Fund’s activity. The rules do not allow the Board to work more dynamic and “we have hands tied,” she said at a press conference in Bishkek.

The Russian side is concerned about the safety of funds, trying to minimize Kyrgyzstan’s impact on the RKDF management. Russia has adopted strict rules of investment and credit policy, as well as the order of investment of temporary free capital.
 
Meanwhile, the RKDF would like to ensure that its funds are not only safe but also work for the economy of Kyrgyzstan. “So we had to prove that the provisions of the Fund are rather conservative,” Akhmetova said.
 
Initially, there was an agreement that Russia will dominate in the Board which determines the RKDF policies and regulations but should not interfere with the Fund’s operations. However, this principle has been violated, and it affected the Fund’s activities.

These issues have been discussed with the Russian side to reach a compromise, and from meeting to meeting, mutual understanding is growing, Akhmetova concluded.

Results

Before the end of January, the RKDF will fully allocate 1.2 billion soms for the development of small and medium business in Kyrgyzstan, the Fund’s press service said.

As part of the program on the targeted financing of small and medium business, two state banks approved applications from 78 companies for 971 million soms (81% of the allocated amount). Of the approved amount, 512 million soms have been allocated to 65 SMEs at 12% per annum.

The basic share of credits (52.9%) was allocated to the agricultural sector, with the others going to the manufacturing sector, modernization of production equipment, mining and metallurgical industries.

The RKDF has directly financed a $7.2 million project in the poultry sector.

Among small and medium enterprises, 53.8% of approved applications were filed by companies operating in the Chui province, 21.8% – in the Osh and Jalal-Abad provinces, 9% – in the Issyk-Kul province and the remaining 15.4% of applications were from the Talas, Batken and Naryn provinces.

Plans

In 2016, the Fund will continue to lend to small and medium businesses and is planning to approve 26 major projects, said Akhmetova. She hopes that this year the Fund will be more dynamic and active in considering applications.

In 2016, the RKDF will finance modernization of the Manas International Airport and Issyk-Kul International Airport.

Three major projects worth $25 million are ready for approval. One of them is construction of a factory for painting denim. There was no such a segment in the industry, which determines the high cost of local garment products. Construction of the factory will allow local garment and textile industries to increase production.

Mortgage lending

The RKDF Board has developed a few options to participate in the program of housing construction.

Currently, construction companies prefer to build luxury housing while economy-class housing could become the basis for mortgage development. The Fund analyzed home prices and salaries of state employees and concluded that these people cannot afford mortgages. To make housing available for public employees, one square meter should cost not more than $380 in Bishkek and about $350 in the regions.
 
To make housing more affordable, the Fund suggested it would buy newly built housing from construction companies for further resale. This year, the Fund will also present a program to build economy-class housing.