Kursiv.kz: How to reduce the dependence of the Kazakhstani MFI market on foreign loans

Since the beginning of 2020, due to changes in legislation, microfinance organizations (MFIs) have been able to invest available cash in securities and attract investments in the stock market.

The ban on trading in securities was not accidentally lifted. In terms of their financial indicators, MFIs have already reached a high quality level; therefore, the opportunity to participate in the organized market through the issuance of bonds is a timely and natural phenomenon. According to the National Bank, on October 1, 2019, the total loan portfolio of MFIs reached 277.3 billion tenge (an increase of 26% since the beginning of the year), the average return on assets (ROA) was 5.3%, and the return on equity (ROE) was 18 % 

Net profit of the sector for nine months exceeded 17.6 billion tenge. Equity and assets of MFIs as of the reporting date amounted to 333.9 billion and 97.5 billion tenge, respectively. In total, 177 MFIs were registered in the special register of the regulator as of the indicated date.

The problem of affordable funding has always been and remains relevant for MFIs. Currently, 70% of all microloans in Kazakhstan are issued at the expense of funds raised from foreign lenders. On the one hand, this is very good, but on the other hand, dependence on foreign funding sources creates a risk for the sector due to possible adverse changes in foreign capital markets. In the domestic market, few MFIs can attract loans from banks due to the lack of liquid collateral required to secure such a loan. 

Bond issuance is one of the ways to raise money to replenish working capital and reduce dependence on foreign creditors. In addition, raising money through securities at a cost lower than existing rates on external loans, which can lead to lower microloans for our borrowers. This is the main advantage of the possibility for MFIs to enter the securities market. And the presence on KASE will provide an opportunity for MFIs to place free liquidity on the security of securities or to raise money for them, which will allow more efficient management of funds.

Domestic investors are constantly talking about the lack of liquid instruments in the market. The problem of our country is that few companies can afford access to the stock exchange, since not all of them are ready to disclose information. At the same time, the activities of MFIs regulated by the Agency for Regulation and Development of the Financial Market (formerly the National Bank) are transparent, and the entry of another sector to the trading floor may change the market in a few years.

For MFIs to be in demand, they need a rating. Indeed, according to the requirements of the regulator, banks and insurance companies can only buy bonds with a rating. Obtaining an assessment of foreign analysts is expensive, and not all MFIs will want to bear such costs. In order to show its reliability and transparency, KMF plans to receive an international rating from an international rating agency. 

In general, entering the stock exchange is a serious step that requires the issuer to prepare: establishing a transparent audit process and preparing financial statements, obtaining a financial rating. Thus, only a few of the MFIs can afford to issue bond programs.

Our company’s strategy for the coming years has plans to increase the attraction of money in the local market. This will reduce dependence on external sources of financing and reduce risks from external shocks of the global economy. Both private and institutional investors need reliable and liquid instruments, which are still not enough in the Kazakhstan market. There is free money on the market, and it requires proper investment and management. 

An increase in the number of qualified players at KASE represented by MFIs will undoubtedly have a positive impact on all market participants. New players, on the one hand, will be able to help companies or banks that need short-term liquidity, and on the other hand, they will provide additional medium-term investment tools.
The new regulation of the market is not limited only to trade on KASE. Now MFIs are allowed to register in the form of joint-stock companies, that is, a new class of shares could potentially appear. We are not in a hurry to re-register the legal status of our company. First you need to work on the repo market, on the bond market, and only then decide on the feasibility of changing the legal form from LLP to JSC.

Source:  https://kursiv.kz/news/finansy/2020-02/kak-snizit-zavisimost-kazakhstanskogo-rynka-mfo-ot-inostrannykh-zaymov

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