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Eurasia Foundation
Grantee Profiles

A Eurasia Foundation Grantee Profile

Taldykorgan, Kazakhstan

Chris Runyan, Eurasia Foundation Almaty Regional Office

Shalkar Zhusupov has one of the most rewarding jobs in town. Today he is giving out awards to some of his best clients, an annual affair. A former employee of the National Bank, he left to manage the Kazakhstan Community Loan Fund (KCLF), a fledgling microcredit program in the southeast corner of the country.

Taldykorgan is a small city several hundred kilometers north of Almaty, the commercial capital of Kazakhstan. Tucked into a small but fertile valley, it straddles the Tien Shan Mountains, which form an imposing border with China. Once an industrial center boasting large furniture, shoe, and battery factories, Taldykorgan has a staggering number of people who have found themselves without work; the factories have been silent for more than five years. With budget shortfalls and a decaying infrastructure, the town has been struggling to find ways of capturing commercial growth.

Enter the KCLF. Founded in 1996, KCLF was established with technical assistance from ACDI/VOCA and loan capital from the U.S. Agency for International Development and the Soros Foundation. From its inception, its goal has been to target women and increase their involvement in commerce—an objective that is still reflected in its 83 percent female clientele.

Microcredit programs are popular development tools around the world, but for Central Asia it is new territory. The basic principles of microlending offer a unique combination of approaches to alleviating poverty, developing small business, and providing fundamental business training. This fills a gap where commercial banking services are absent. Because of small loan sizes and inevitable operations costs, commercial banks do not seek clients in this market. These loans are crucial, however, as many small businesses and entrepreneurs would not be able to find other sources of capital.

In August 1999, the Eurasia Foundation Almaty Regional Office provided KCLF with $150,000 in badly needed loan capital, allowing them to expand the loan portfolio to a greater area and keep the program solvent.

The Peer Lending Model

KCLF has proven to be a role model in its use of microcredit as a viable development tool in Central Asia. Having distributed 12,500 loans totaling more than $2.6 million, it is the premier microcredit program in Central Asia. The "peer lending model" is one of KCLF’s secrets of success. This model revolves around each member of the group assuming equal rights and responsibilities. Two- to twelve-month loans are distributed to groups of approximately five to ten individuals who come from varying areas of business. KCLF members graduate through the loan levels, starting from $200 and going as high as $3,000. Upon the last payment of a group loan, each member becomes eligible to move up to the next level. Many clients are traders in bazaars, shop owners, or operators of home-based businesses. Should one member fail to pay back their loan, the whole group takes financial responsibility for the debt. The premise is that if an individual fails, the group fails. "The group knows how crucial it is that everyone make payments on time, and there is considerable peer pressure to make sure that is what happens. Delinquency is just not tolerated," explains Zhusupov. The self-governing aspect of the group does not end there. Each group selects officers to act as bookkeeper, secretary, and coordinator. Before monetary disbursements, each group goes through a training program where they must demonstrate the viability of their business plan to KCLF and to the group itself.

KCLF staff includes fourteen "Enterprise Agents" who are tasked with finding new clients and managing the existing groups. The agents are paid based on the number of new clients they bring to the program and the success of the groups under their management. If a group struggles, then the agent loses as well. "Everything depends on the clients, and training is crucial. All of our staff and clients are given the training they need," adds Zhusupov. KCLF has provided forty employees with a unique opportunity to gain business and management skills that impact their community.

"The unique thing about KCLF is that we have been able to do what many other NGO programs haven’t. We look at the bottom line," says Janice Stallard, KCLF’s Regional Director and an ACDI/VOCA employee. She was one of the instrumental people in getting the program started and is now almost completely removed from the management. "The transparency in decisionmaking makes it clear that authority and accountability rests with the local employees. This is their organization, and their livelihood is connected to its profitability."

The Kitchen Bakery

"At the beginning, everyone said I was a fool, cooking with one hand and kneading with the other in my own apartment," says baker Armen Gasparyan. He now employs twenty-two people in Taldykorgan and has moved his operation into part of a closed sewing factory. He first heard about KCLF from one of the enterprise agents in his area while he was selling agricultural commodities. In two years he has received seven loans, graduating from $200 to $2,000. His family members have been bakers for generations, and he is obsessed with quality. To this day his sister travels to northern Kazakhstan to buy flour that Gasparyan is convinced gives them an advantage. "The most important thing is quality, and now the Almaty market is coming here, since we can deliver a high-quality product for less." They now provide baked goods to forty-three stores and have distribution contracts with twelve supermarket chains. "I work all the time, but our profession has a saying: You do this for one of two reasons; either you’re paid so well you stay and do the devil’s work, or you’re paid poorly, but you love what you do." Gasparyan is certainly the latter of the two.

The Startup Cafe

Lyudmila Im is another. She received her first loan in August 1998 when she was selling imported clothing and shoes. After three loans she opened her own cafe and is already talking about changing locations and opening a 24-hour patio cafe. Im first heard about KCLF when she was working in the bazaar. She knew she could not receive commercial credit from a bank, but wanted to change her work and go out on her own. "I came from misery, but now I have more freedom and I’m my own boss. I knew I could make a profit, and now I have stable work to support my children."

KCLF’s success has not gone unnoticed. "Recently, we conducted a training course for a microcredit program management team from Tajikistan and another from Uzbekistan. They were impressed with the way we had adapted microcredit models that had been used in places like Latin America to meet our circumstances," says Zhusupov.

As further inspiration, KCLF was granted the very first non-banking financial institution license to operate in all of Kazakhstan. "When we started, there wasn’t even a legal structure to allow any of this to happen," says Stallard. In February 2000, KCLF expanded to establish a program in the southern Kazkhstan city of Shymkent, another area that suffers from the difficulties of economic transition. They plan to open branches in other Kazakhstani cities in the near future. KCLF is also in negotiations with a commercial bank that may provide additional loan capital as they expand. For a non-collateralized lending institution, this would be a great victory.

"Our growth and success are based on expansion," says Zhusupov. At a recent board meeting, the discussion focused on plans for expansion into nearby areas, which provide fertile territory for what has already proven to be a prudent and successful program. KCLF staff are eager to push their laudable achievement of financial sustainability to full profitability.

KCLF provides capital to a sector of the economy with good ideas, but no resources. By creating jobs, developing human resources, and increasing entrepreneurs’ ability to make and sustain profits, it brings social and economic benefits to its participants. With 500 groups totaling almost 3,000 clients, KCLF is making a daily impact on the Taldykorgan region. "We're not just providing micro-lending services," says Zhusupov. "We’re changing mindsets and creating the next generation of genuine entrepreneurs. This program proves that Kazakhstan has its share of sound commercial ideas and energetic, dedicated people."

July 2000

This document (c) 2001, The Eurasia Foundation.
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