In post-Soviet Kyrgyzstan, entrepreneurship takes hold

It's the easiest place in Central Asia to start a business, but high interest rates make it hard to get small business loans.

from the April 30, 2008 edition

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The second reason is that lending money in Kyrgyzstan is risky, according to Alima Nurgazieva, a spokeswoman for Asia Universal Bank, one of the country's leading banks. There's the risk that customers will be unable or unwilling to repay their debts. And there's also the risk of "general macroeconomic and political instability in the country," adds Mr. Bakas uluu.

In 2005, mass protests forced out the Kyrgyz Republic's government. Since then, the situation has quieted down, but it is still not entirely stable. After a disputed October 2007 constitutional referendum, the opposition parties formed a "revolutionary committee" dedicated to bringing down the government – again.

Despite this instability, the credit market here has been growing fast. The amount of credit extended to the private sector increased more than fourfold to $331 million in 2006 from $71 million four years earlier.

Much of this money goes to big borrowers, though, according to the World Bank. Banks here consider small business lending "too bothersome," Bakas uluu said.

Whether banks are eager to provide capital or not, Kyrgyzstanis unable to find jobs – or well-paid jobs – continue to turn to entrepreneurship.

While the official unemployment rate in recent years has been about 8 percent, this number is misleading since the government counts every landowner as employed, according to an Asian Development Bank report. "Lack of jobs in rural areas has led to mass migrations of young people to urban areas," the report said.

In the cities, these labor migrants often can't get work. So they create their own. About half the population of the country is involved in small business, according to Usen Kydyraliev, director of the Entrepreneur's Union of Kyrgyzstan. Despite the difficulties with bank borrowing, "people find ways to open businesses," he said.

Some borrow money from their families, as Zamira Kyrgyzbekova did to start a fruit store. Some sell houses or other assets to raise cash, as Ms. Semenko did to start her transport company. Some turn to informal financing, as Tajibek Arinaliev did to buy a minivan for his new private bus service. Others go to places with higher wages – such as Kazakhstan or Russia – to work and save money. And many turn to microcredit organizations, despite high interest rates.

The good news is, the situation is improving. As the years have passed and the banking sector has grown, access to finance has improved, and interest rates have fallen. "Overall," says Bakas uluu, "prospects for the banking sector look optimistic."

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