Development strategy of “damu entrepreneurship development fund” JSC for 2014-2023 years

Environmental analysis Анализ внешней среды Environmental analysis Performance indexes of SME entities of Kazakhstan for 2005-2013 years. Since 2005 through 2013 the number of registered SMB entities increased twice and made up to more than 1,5 million entities Number of population occupied in SMB sector increased by 1,4 times and made to more than 2,6 million people in 2013. SMB product output increased by 5,8 times for the period under consideration and made 9 020 milliard tenge per annum Source: Statistics Agency of RK (www.stat.gov.kz) Lending dynamics of economy and small businesses by banks Restoration of growth of loans granted to SMB during 2011 – 2012 years is monitored. Share of loans granted to SMB in second tier bank portfolio is decreasing annually SMB sector in most extent is financed from own funds of entrepreneurs and only for a quarter through bank lending Insufficient meeting of the entrepreneurs’ demand for financial resources Source: National Bank of RK (www.nationalbank.kz)

P –political legal factors Т -Technological and technical factors PEST-анализ PEST analysis PEST factors Open opportunities Pose threat P –political legal factors Purposeful strategy of the Government for developing private entrepreneurship and increasing its role in the economy. Working in National Management Holding “Baiterek” JSC. Interaction with the Holding development institutes. Interaction with Entrepreneurial Development Committee under Regional Development Ministry of RK Changing legislation in the entrepreneurship support area. Tightening the banking legislation. Economical factors E – Continuation of economic growth and country economy diversification. New instruments for SMB support become available. Restoring “long” liquidity of second tier banks and their capability of crediting private entrepreneurship entities out of own resources. Opportunities of Kazakhstan to attract funding from international institutes for development (ABR, EBRR and so on). Functioning of Customs Union and Common Economic Space with RF and RB. Decreasing credit ratings of second tier bank - partners. Low developing rates of SME in industrial sector and innovation area. No mechanisms, conditions and motivation for transforming small enterprises to medium size enterprises. Reduction of home demand for domestic goods. Limitedness of domestic market and remoteness from international sales markets. Probability of recurring global economic crisis. Social factors S – Involving wide layers of population in entrepreneurial activity. Growth of incomes of people occupied in private entrepreneurship. Resolving problems of employment among people.   Low level of incomes and business solvency of entrepreneurs at the regional level. Low level of qualification of entrepreneurs. Youth shows low interest in holding entrepreneurial activity. Т -Technological and technical factors Introducing entrepreneurship informational support and development programs based on modern IT, electronic commerce systems. Availability of modern production technologies an highly effective equipment for entrepreneurs. No demand for modern information technologies among targeted audience.

Анализ внутренней среды Internal environment analysis Results by major activity areas As of 01.05.2014. Performance of programs for specified investment of funds in second tier banks and lease financing Number of borrowers, units. Financing amount, million tenge Number of created jobs Credit provision through second tier banks (STB) 12 218 708 046 29 190 Lease financing 223 6 417 2 237 Microbanking 2 638 72 551 445 In total 15 079 787 014 31 872 Performance of “Business Road Map (BRM) 2020”: 1-3 areas Number of agreements, units Amount of credits, milliard tenge Amount of subsidies / securities, milliard tenge Subsidization of fee rate 3 628 883,2 63,9 Credit guaranteeing 311 24,1 10,1 Performance of “BRM 2020” program: 4th area Project “Business - Advisor” 54 063 Project “Training top management of SMB” 840 Project “Business relationships” 1 667 Project “Service support for business” 32 402 Performance of entrepreneurial competence centers Number of clients Number of consultations Entrepreneur service centers 24 276 46 734 Entrepreneurship support centers in mono towns 17 218 27 514 Mobile entrepreneurship support centers 7 765 10 510

Profitability performance profile Анализ внутренней среды Internal environment analysis Fund financial state Profitability performance profile Balance sheet figures Description 2011 2012 2013 ROA, return on assets 1,8% 1,9% 2,1% ROE, return on equity 7,5% 4,5% 4,4% Operating profitability 29,9% 35,5% 39,3% Net profit, thousand tenge 3 461 820 3 456 204 3 488 007 NI margin 24,6% 27,8% 30,0% assets Liabilities Own capital In 2011-2013 years stable net profit at the rate of 3,4 milliard tenge is ensured Positive return on assets and equity capital Equity capital has increased twice for the recent three years On the whole the Fund has a high level of capital and this will enable to attract more debt finance instruments (borrows from the budget, international financial institutes, loans raised upon bonds) and based on this the Fund is capable of increasing size of assets

Benchmarking Correlation of credit volumes granted to SMB by programs of institutes for development as to Gross Domestic Product (GDP) of the country Correlation of credit volumes granted to SMB by programs of institutes for development as to the country SMB production output Share of covering SMB entities by support programs of institutes for development Volumes of SMB credits granted to clients of the Fund in the ratio with GDP of the country are higher than in the countries - benchmarks Volumes of SMB credits granted to clients of the Fund in the ratio with SMB production output are higher than in the countries - benchmarks Share of covering SMB entities by programs of the Fund is assessed to be at the level of 7% of the total number of SMB entities in the country Fund looks sufficiently competitive on the background of analogical organizations occupied in supporting SMB Source: World Bank, analytical magazine section The Economist, work group review

SWOT-analysis S – Strong points W – Weak points Long time experience in supporting SMB and microcredit organizations. Wide range of SMB support measures. Well developed regional network of branches and entrepreneurial competence centers. Presence of a strong shareholder - National Management Holding “Baiterek” JSC. Fund – an operator of Stabilizing program and “BRM 2020” program. Well adjusted and effective support mechanisms, transparency in their implementation. Focus on corporate social responsibility. Team of professionals with experience of working in financial institutes. Long time partnership with analogical foreign organizations. Availability of credit rating. Low accessibility of the Fund services for entrepreneurs of regions and remote administrative-territorial units. The need for combining tasks to ensure profitability of operational activity with realization of social orientated noncommercial programs. O – Opportunities Т – Threats Increased attention to issues of developing private entrepreneurship within the framework of state economic policy. The need for realizing educational projects for entrepreneurs. Demand for new effective SMB supporting instruments. Expanding partnership relations with analogical organizations worldwide. Acquiring synergy from working with instituted for development of National Management Holding “Baiterek” JSC through using complex package of support instruments. Lack of trust in companies with public ownership providing support for entrepreneurship on the part of private entrepreneurship entities. Low qualification level of entrepreneurs in business holding area. High competiveness level among foreign and domestic companies against background of integration of Kazakhstan to international community.

Provide adequate financing volumes for SMB on affordable conditions Mission, vision Challenges for the Fund Provide adequate financing volumes for SMB on affordable conditions Encourage financial institutes to finance SMB sector in sufficient volumes Assist reduction of interest rates Assist SMB in accordance with requirements for collaterals Reduce deficit for highly qualified personnel with entrepreneurial and business experience Increase financial literacy Develop managerial and entrepreneurial skills Принципы финансирования и инвестиционной политики Отраслевая ориентация MISSION: VISION: Mission of the Fund is to assist qualitative development of SMB in Kazakhstan through providing comprehensive support including wide range of financial instruments and programs for developing competencies Vision of the Fund by 2023 – highly effective national institute realizing state policy for supporting and developing SMB Create effective institute for development integrated in National Management Holding “Baiterek” JSC Ensure breakeven level of operating and financial activity results Increase effectiveness of managing financial resources Increase transparency of operation and level of trust of people Strategic areas of development Ensure financial support for SMB entities Develop competencies of SMB entities

PERFORMANCE COEFFICIENT Creating effective institute for development integrated to National Management Holding “Baiterek” JSC Tasks PERFORMANCE COEFFICIENT Maintain Return On Assets (ROA) at break even level 1,09% in 2014, 1,2% in 2023. Maintain Return On Equity (ROE) at break even level 2,07% in 2014, 2,5% in 2023. Maintain cost-effectiveness at break even level 19,5% in 2014, 20,5% in 2023. Maintain weighted average return - internal rate of return at a level not lower than 6,0% till 2023. Increase operating productivity from 37 592 thousand tenge in 2014 to 63 690 thousand tenge in 2023. Maintain index NI margin at break even level 17,3% in 2014, 18,5% in 2023. Maintain loan portfolio quality at the level 5,2% till 2023. Increase local content share in procurements of the Fund including by goods from 60% in 2014 to 70% in 2023, works and services from 90% in 2014 to 96% in 2023. 1 Ensure break even level of operational and financial performance results 2 Increase effectiveness of managing financial resources Maintain Debt / Capital index at a level not exceeding 3,5 till 2018. performance target Debt / Capital for 2023 will be identified in accordance with recommendations of rating agency Maintain the Fund credit rating at a level not lower than sovereign rating during the whole period of implementing Development Strategy 3 Increase transparency of business and level of trust by people Increase share of SME entities which have been supported against the total number of actively operating SME entities at the market from 4,6% in 2014 to 11,2% in 2023. Maintain awareness extent of the Fund among people at a level not lower than 85% during the whole period of implementing Development Strategy

Ensuring financial support for SMB entities Strategic areas of development Ensuring financial support for SMB entities Tasks PERFORMANCE COEFFICIENT 1 Increase volumes of financial support for SMB Increase volumes of assets against GDP from 0,57% in 2014 to 0,63% by 2018, 0,74% by 2023. Increase the share of credit portfolio from 206 milliard tenge in 2014 to 391 milliard tenge in 2018, 869 milliard tenge in 2023. Maintain the share of credit portfolio in total assets at the level 94% by 2023. Increase volume of funds allocated for developing entrepreneurship by financial programs from 328 milliard tenge in 2014 to 507 milliard tenge in 2018, 583 milliard tenge in 2023. 2 Extend areas of cooperation and financing mechanisms / co-financing mechanisms of SMB jointly with financial institutes Multiply co-financing for SMB entities on the part of second tier banks by credits granted under conditional financing program to 1:2 value in 2023. 3 Attract extra funding at domestic and external markets to increase financing volumes for SMB Increase the share of attracted funds for financing SMB entities out of extra- budgetary resources from 20% in 2014 to 40% in 2023.

Ensuring financial support for SMB entities Strategic areas of development Ensuring financial support for SMB entities Increase volumes of financial support for SMB Provide finance for SMB entities through second tier banks Provide finance for leasing deals of SMB entities Develop microfinance sector Subsidize fee rate by credits for SMB entities and leasing deals Guarantee credits of SMB entities Extend areas of cooperation and financing mechanisms / co-financing mechanisms of SMB jointly with financial institutes Bring multiplier value of co-financing SMB projects by second tier banks to 2 by 2013. Launch targeted regional and branch-wise programs Attract extra funding at domestic and external markets to increase financing volumes for SMB Foreign and domestic capital markets : - ABR funds (2, 3 tranches), in prospect EBRR, World Bank and others. - attract funds due to issuing securities (within limits of funds out of National Fund of RK) Funds of ЕА and its DO Attract funds of RB, Monitoring and Assessment Maintain level of Fund credit rating

Developing competencies of SMB entities Strategic areas of development Developing competencies of SMB entities Tasks PERFORMANCE COEFFICIENT 1 Develop infrastructure of consulting services for entrepreneurs Increase number of clients of entrepreneurship support centers from 33,2 thousand SMB entities in 2014 to 188 thousand SMB entities in 2023. 2 Training entrepreneurs and increasing competencies Increase number of participants of training programs from 22,5 thousand people in 2014 to 25,5 thousand people in 2023. Increase share of training program participants opened their own business from 10% in 2014 to 25% by 2023. Increase satisfaction degree among entrepreneurs by held training from value at least 80% in 2014 to value 85% by 2023. 3 Introduce common informational platform for SMB and develop distance consulting methods Increase number of clients received distance services from 36,5 thousand people in 2014 to 146 thousand people in 2023.

Developing competencies of SMB entities Strategic areas of development Developing competencies of SMB entities Develop infrastructure of consulting services for entrepreneurs Oblast – stationary entrepreneur service centers on the basis of regional branches of the Fund. 17 centers Mono town – stationary entrepreneurship support centers . 27 centers Region – стационарные stationary entrepreneurship support centers in regional centers and small towns of Kazakhstan. 161 centers Mobile entrepreneurship support.centers. 14 centers Training entrepreneurs and increasing competencies Train the beginners and actively operating entrepreneurs Train SMB top management Business on-the-job training Provide support for attracting foreign experts as mentors in enterprises of Kazakhstan Train young entrepreneurs under 29 years old Monitor provision of service support Promote and take populist measures to propagate entrepreneurship ideas through explaining state support measures among broad segments of the population Introduce common informational platform for SMB and develop distance consulting methods Business portal services Call center services Introduce CRM-system Attract sponsor support via “Damu-Komek” site for disabled entrepreneurs Informational-analytical support (issue report on current state of SMB development in Kazakhstan and in regions; arrange regular marketing researches; hold Round tables and Forums of SME)

Expected results No. Index 2014 2018 2023 Building effective institute for development integrated in National Management Holding “Baiterek” JSC. Ensuring break even level of operational and financial performance results 1 ROA, Return On Assets, % 1,09 1,1 1,2 2 ROE, Return On Equity, % 2,07 2,5 3 Business cost-effectiveness, % 19,5 19,7 20,5 4 Weighted average return - internal rate of return, % 6,0 5 Operating productivity, thousand tenge 37 592 59 523 63 690 6 NI margin, % 17,3 17,8 18,5 7 Loan portfolio quality (level of provisions against loan portfolio), % 5,2 8 Share of local content in procurements of the Fund: 8.1 Goods, % 60 64 70 8.2 Works and services, % 90 94 96 Increase effectiveness of managing financial resources 9 Debt/Capital, % 0,8 3,5 -* 10 Credit rating ВВВ+ Not lower than sovereign Increase transparency of business and level of trust among people 11 Share of SMB entities which have been provided with support against the total number of actively operating SMB entities in the market , % 4,6 8,6 11,2 12 Awareness degree of the Fund among population, % 85% Not lower than 85% * Index will be specified in accordance with recommendations of rating agency

Expected results No Index 2014 2018 2023 Strategic area 1. Providing financial support for SMB entities Increase volumes of financial support for SMB 13 Volume of assets against GDP, % 0,57 0,63 0,74 14 Credit portfolio, milliard tenge 206 391 869 15 Share of credit portfolio of total assets, % 94 16 Volume of funds allocated for developing entrepreneurship under financing programs, milliard tenge 328 507 583 Extend areas of cooperation and financing mechanisms / co-financing mechanisms of SMB jointly with private financial institutes 17 Multiplier value of co-financing SMB projects on the part of second tier banks by credits granted under programs of conditional fund investment - 1:1 1:2 Attract extra funding at domestic and external markets to increase financing volumes for SMB 18 Share of attracted funds for financing SMB entities out of extra-budgetary resources, % 20 36 40 Strategic area 2. Developing competencies of SMB entities Develop infrastructure of consulting services for entrepreneurs 19 Increase number of clients of entrepreneurship support centers, number of persons. 33 280 106 860 188 370 Training entrepreneurs and increasing competencies Number of participants of training programs, number of persons. 22 500 24 000 25 500 21 Share of training program participants opened their own business, % 10 25 22 Satisfaction degree among entrepreneurs by held training, % At least 80 At least 85 Introduce common informational platform for SMB and develop distance consulting methods 23 Number of the Fund clients received distance services, number of persons. 36 500 73 000 146 000

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