The World Bank’s International Finance Corporation (IFC) together with the government of the Kyrgyz Republic has developed an amendment to the country’s tax code pertaining to value added tax (VAT) in an effort to expand the leasing sector.
The newly signed law is targeted at the country’s agricultural sector, allowing small and medium enterprises to purchase equipment needed to operate more efficiently. According to a 2006 IFC report, the most common leased assets in the Kyrgyz Republic were trade equipment (42%), agricultural machinery (28%) and equipment for food processing (14%).
Previously, the value added tax (VAT) system in the Kyrgyz Republic hindered the growth of the leasing sector. The Kyrgyz tax code levied value added tax for assets imported into the country for lease, however fixed assets imported by commercial institutions for their own manufacturing purposes were exempt from paying import VAT.
The IFC has been involved in the development of leasing in Kyrgyzstan as part of its plans to strengthen the country’s overall financial sector. In 2005, the IFC launched a three-year technical assistance leasing project in Kyrgyzstan. The IFC has worked with the Kyrgyzstan government through technical assistance to create a regulatory framework, expand public awareness of leasing, and build the capacity of local microfinance institutions to provide leasing services.
The IFC is currently planning to provide financial support to create model leasing institutions in the region, and are working with Bai-Tushum Financial Foundation, one of Kyrgyzstan’s leading microlending institutions to develop their leasing operations, policies and procedures in an effort to expand financial services to the country’s low-income rural regions. In 2006, the IFC provided Bai-Tushum with USD 2.2 million in financing to facilitate the institution’s expansion and eventual transition into a commercial bank.
The leasing project in Kyrgyzstan is part of the IFC Azerbaijan- Central Asia Leasing Facility AS Project, a USD 30 million credit facility and three-year advisory services program. As of December 2007, the 13 participating institutions’ leasing transactions totaled more than USD 93 million.
Bai-Tushum is a non-bank financial institution established in 2000 with the mission of contributing to the sustainable development of the Kyrgyz economy by providing financial services to farmers and other micro, small and medium size entrepreneurs. The institution currently has 10,695 active borrowers with a gross loan portfolio of USD 23.4 million and total assets of USD 34.7 million. Their return on assets (ROA) at the end of 2007 was reported at 5.68 percent with a return on equity (ROE) or 23.31 percent.
Established in 1956, the IFC, a member of the World Bank Group, provides loans, equity, structured finance, and risk management products to support private sector investment and expansion in developing countries.
By Melissa Duscha
Additional Resources:
IFC Helps Improve Leasing Regulatory Environment in Kyrgyz Republic
IFC Helps Kyrgyz Microfinance Institution Transform into Commercial Bank
IFC: Leasing in Kyrgyz Republic: An Overview of the Market
International Finance Corporation (IFC): Azerbaijan- Central Asia Leasing Facility AS Project
International Finance Corporation (IFC): Leasing in Kyrgyzstan
The World Bank: International Finance Corporation (IFC): Kyrgyz Republic
Similar Posts:
- MICROCAPITAL BRIEF: Tunisie Leasing and Factoring Borrows $7.5m from BII-Symbiotics Green Bond Program for SMEs in Tunisia
- MICROCAPITAL BRIEF: Imkon of Uzbekistan Nets Convertible Debt from BOPA to Expand Microfinance, SME Finance
- MICROCAPITAL BRIEF: Oxus Kyrgyzstan Borrowing $1.6m from Grameen Credit Agricole Foundation for Microfinance Lending
- MICROCAPITAL BRIEF: Enabling Qapital Loans $10m to AccessBank for Microfinance, SME Lending in Azerbaijan
- MICROFINANCE PAPER WRAP-UP: “Green Energy Finance and Gender Disparity: The Case of Mountain Areas in Bangladesh,” by Sakib Bin Amin et al, Published by Copenhagen Business School
