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.
When Natalia Semenko started her own transport company, she didn't even consider approaching a bank for startup cash. Faced with interest rates of 20 to 25 percent, she sold her house instead.Skip to next paragraph
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According to the World Bank, this teenage former Soviet republic is the easiest place in Central Asia to start a business. But would-be entrepreneurs face some of the least accessible financing in the world. This slows development in a country that desperately wants and needs to grow, contributing to a sense of frustration that is one of the forces behind its continuing political instability, some experts say.
"There's this perception that they're not getting anywhere, that they're not growing," says Robert Anderson, an instructor in the business administration department at the American University of Central Asia in Bishkek.
In turn, that instability can dissuade investors. But the pool of available credit is growing and the country's commercial banking sector has grown from zero to 23 institutions since 1991, slowly improving the situation for entrepreneurs.
In "Doing Business 2008," a World Bank study of business climates that included 178 countries, the Kyrgyz Republic ranked 94th: more business-friendly overall than Russia and nearby Uzbekistan, but not as much as its Central Asian big brother, Kazakhstan. Entrepreneurs here say the mechanics of starting businesses, things like licenses and taxes, aren't major obstacles – a fact reflected in Kyrgyzstan's No. 1 regional ranking in that category. The key is finding capital.
Incomes are low here, so it's hard for Kyrgyzstanis to save enough to start businesses. A nurse might make $40 a month, while a professor might make up to $600. And borrowing is expensive.
While interest rates on small business loans from commercial banks average 20 to 25 percent, interest on microfinance loans can reach 48 percent. By comparison, in the US the average interest rate on small business loans is 8 percent, according to the National Federation of Independent Businesses.
There are two major reasons why bank loans are expensive here. First, the pool of available capital is small – though it's growing – and in high demand.