Activity Data Sheet

PROGRAM: Kyrgyzstan
TITLE & NUMBER: Improved Environment for the Growth of Small and Medium Enterprises, 116-0131
STATUS: New
PROPOSED FY 2001 OBLIGATION AND FUNDING SOURCE: $7,200,000 FSA
PROPOSED FY 2002 OBLIGATION AND FUNDING SOURCE: $7,000,000 FSA
INITIAL OBLIGATION: FY 2001 ESTIMATED COMPLETION DATE: FY 2005

Summary: This SO includes funds previously reported under SO 1.4. The goal of this objective is to stimulate growth of the small and medium enterprise (SME) sector by improving the business environment. USAID will pursue this goal by: 1) providing greater opportunities to gain skills and knowledge that enhance SME growth; 2) developing mechanisms to provide for the accumulation and distribution of capital needed to finance SMEs, and increase the opportunity of businesses to gain access to credit; and 3) providing assistance targeted at increasing laws and regulations that support SME growth.

Program Categories include support for micro, small and medium enterprise technical assistance; banking reform; education and support for rule of law.

Key Results: Key results necessary to achieve this objective are: 1) increased opportunity to acquire business information, knowledge, and skills; 2) more responsive financial institutions, instruments, and markets; and 3) increased implementation of laws and regulations.

Performance and Prospects: The operating environment for SMEs in Kyrgyzstan improved during FY 2000 with the passage of key regulations and laws. With USAID guidance, the GOK passed a decree requiring full compliance with international accounting standards (IAS) and international standards of auditing (ISA). In addition, the government passed a law that decreased by 65% the number of licenses required by businesses.

USAID continued to focus attention on training, again far exceeding established benchmarks. A total of 5,048 accounting practitioners and 10,500 students are now trained in financial accounting, managerial accounting, and audit. Two hundred civil servants are now trained in tax inspection, and approximately 2,000 farmers now understand their land rights.

At the end of 2000, with USAID support, the Kyrgyz Government signed a new land law allowing the free sale of land. USAID had notable successes in other areas of legal reform as well. USAID launched a program to create a public database of judicial opinions, which will subject the work of courts to public scrutiny and force them to operate with more transparency, consistency, and predictability.

In 2000 USAID provided significant assistance in the passage of key World Trade Organization (WTO)-compliant regulations and laws, including a Customs regulation regarding intellectual property rights and a regulation on trademarks. USAID assistance resulted in the development of a Customs Reform and Modernization Plan, approved by the Kyrgyz government in August 2000, and the formation of an External Control Department (Audit Team). USAID worked to ensure the sustainability of these efforts through training of civil servants on WTO and Customs issues, the establishment of the WTO and Trade Information Center at the Ministry of Foreign Trade and Industry, and the creation of a Ministry of Foreign Trade internet site.

During FY 2000, USAID completed its Kyrgyz bank accounting reform. All Kyrgyz banks have now been converted to international accounting standards. In response to a request from the National Bank, USAID began providing banking supervision assistance during 2000. USAID helped the National Bank to improve the on-site inspection process, complete an inspection manual, and train inspectors to conduct risk-based evaluations of commercial banks. Moreover, USAID helped the National Bank to develop and implement an off-site monitoring system.

Activities to strengthen the financial sector and improve access to credit were successful, as USAID's micro-lending programs grew steadily into sustainable institutions that meet the demands of small business. More than $12.5 million in micro-credit was disbursed in FY 2000 to more than 25,333 clients. More stringent capital requirements have helped generate an increase in total bank capital from $14 million to $17 million.

In FY 2001, USAID will undertake a broad expansion into SME training and economic education initiatives. Currently, business and economics programs in Kyrgyzstan are not teaching future business leaders the knowledge and skills needed to operate in a market economy. The upcoming Regional Economics and Business Education activity will provide increased opportunities for access to business and economic information through improved resource materials, training, and research opportunities at universities in Kyrgyzstan.

The new SME training activity will develop courses in a wide range of business topics, provide business advisory services and facilitate business association and advocacy development. Thus far, the project has delivered courses in finance, credit, accounting, and marketing strategy. This activity also includes a Business Advisory Services component that has already completed assessments of 120 businesses.

For the planned activities, involving technical assistance and training, USAID intends to obligate in FY 2001 the following amounts per category: Micro, Small and Medium Enterprise Technical Assistance, $2,420,000; Banking Reform, $500,000; Education $620,000 and Support for Rule of Law, $3,660,000.

In 2002, USAID will continue to work together with private sector and government to create freer markets where micro-, small- and medium-sized enterprises can thrive. This effort to expand business and trade will include removing licensing/regulatory restraints, increasing access to credit, and expanding business skills and knowledge. USAID will work selectively with the Government to develop the stock market and to strengthen banking by providing off-site technical assistance, previously provided by the IMF. Also, USAID plans to concentrate on economics and business education, basic business management skills, and consulting services to business through Business Advisory Centers. USAID will continue to provide critical post-World Trade Organization (WTO) accession support to ensure that WTO obligations and requirements are fulfilled and will determine a timeframe for Kyrgyzstan's graduation from WTO assistance. Further training will be provided to professionals and farmers to increase awareness of private land ownership laws.

Beneficiaries: USAID's customer focus is job creation, economic growth, greater participation, and improved quality of life for the citizens of Kyrgyzstan. As such, the ultimate beneficiaries are entrepreneurs who can increase profitability, and those individuals who secure new employment. Furthermore, by expanding economic opportunity and building a constituency for reform, such a program can mitigate political and economic crises in key parts of the region, such as the Ferghana Valley.

Possible Adjustments to Plans: None anticipated.

Other Donor Programs: The World Bank, the Swiss Agency for Development and Cooperation and the British Department for International Development are supporting land reform. The Dutch Centre for International Legal Cooperation is supporting judicial reform, civil code commentaries and training in legislative drafting. The European Bank for Reconstruction and Development (EBRD) is implementing an SME Lending Program, and the Asian Development Bank (ADB) is implementing a Financial Sector Program.

Principal Contractors, Grantees, or Agencies: Pragma Corporation implemented the SME training activity. ARD/Checchi and Chemonics implemented the regulatory reform activity. Booz-Allen & Hamilton was responsible for delivering WTO and customs assistance. Barents implemented the banking supervision activity. The Academy for Educational Development provided training for counterparts, and the Eurasia Foundation provided small grants. Central Asian-American Enterprise Fund (CAAEF) and Private Voluntary Organizations (PVOs) such as Citizens' Democracy Corps (CDC), International Executive Service Corps (IESC), Foundation for International Community Assistance (FINCA), Mercy Corps, and Agricultural Cooperative Development Institute/Volunteers in Overseas Cooperative Assistance (ACDI/VOCA ) provided financial and technical assistance, respectively.

FY 2002 Performance Table

Selected Performance Measures: Improved Environment for the Growth of Small and Medium Enterprises, 116-0131

Indicator Information:

U.S. Financing

(In thousands of dollars)