1. Required pledge.
Banks have to ensure their credits, which are given to entrepreneurs in case of bankruptcy. Thus, all banks demand pledge maintenance from borrowers. Banks accept as a pledge property, guaranties of other legal persons, and other types of pledges. For instance, European Bank of Reconstruction and Development accept real estate, motor vehicles, personal property, enterprises’ property and goods, which are in business (Yevropeyskiy bank rekonstrukzii I razvitiya, 2001). In our considered “Oasis” company, the pledges were real estate of the founders and commodity stocks. Estimated value of the commodity stocks was equal to 20 mln. tenge.
2. Difficulties of enterprises with providing a pledge.
It is very difficult to receive a credit on ordinary terms, offered by banks. This is due to most enterprises are not able to provide a pledge required by banks or their pledge is not liquid enough.
There are several problems, which are arising with providing a pledge to bank. The most important is illiquidity of the pledge that if offered by enterprises. Banks accept movable and immovable property, which is owned either by enterprise or entrepreneur, guaranties of other legal persons, marketable securities (Kreditovaniye, 2001). Another important thing is that banks usually underestimate cost of the pledge. And the last thing is registration of documents confirmed your ownership of the pledge. Banks, when they are giving out a credit, demand these last two items. Thus, if the estimation of the pledge that is carried out by experts of the bank is free of charge, then confirmation of ownership is carried out at the expense of the businessman. (Dauranov I., 2000).
As we already mentioned, the pledge of “Oasis” company to the bank were real estate and commodity stocks. But firstly, “Oasis” company offered only real estate as a pledge, but in bank said that this is not enough, and then company added commodity stocks (Sahauyeva, 2001). Most probably, that bank underestimated the cost of real estate, and then demanded more property in order to ensure its money in a best way. It is well, that “Oasis” company could offer commodity stocks, but if there were another company with not very big amount of assets, we think, that bank would deny in borrowing money, because there are so many companies that needs money to increase their turnover or to buy some equipment, that banks could just choose the biggest company with a big amount of assets. This is support the idea that banks are more pleased to work with big companies and with big money, rather than with small enterprises.
Thus, it is very difficult to receive a credit. You may have problems with providing a liquid pledge, demanding by banks. Even if your business goes well and profitable, your company could just have not enough assets to offer it to the banks, moreover, you are asking a loan to buy an equipment, to increase your assets, but bank gives loans only to those, who already developed. Thus, there is a situation, that rich become richer and poor become poorer.
E. Interest Rates and Repayment.
Now, let us consider interest rates, which enterprises have to pay as a payment to the banks for lending money. For example, interest rates of NSBK are determined in dependence with concrete case and project:
- On credits in national currency – from 24%
- On credits in national currency with fixation of currency equivalent –from 17 %
- On credits in foreign currency – from 17% (Kreditovaniye, 2001).
These interest rates looks pretty high, but there are a lot of programs on supporting small business, and many banks support this policies and offer credits to enterprise on less interest rates. For instance, Kazkommertz Bank offer 1% on foreign currency credits (Kreditovaniye (kkb), 2001). For example, our case company “Oasis” took credit under program of supporting small business and took a credit in Bank Centercredit in national currency under 10%.
The scheme of repayment of the credit and interest is usually in most banks on personal scheme. “Oasis” company’s payment schedule also was personally scheduled. They took credit on 9 months and made monthly payments: part of the credit itself and part of interest rate. In first months repayments interests charged on low rate, but closer to the 9th month interest grew.
Summary.
Thus, we can conclude, that entrepreneur has to prepare many documents, prepare to meeting with executive of credit department of the bank, have a liquid pledge, and have enough assets to give it as a pledge in order to be able to satisfy the bank’s requirements. There are so high interest rates, but still there are many programs on supporting small business lending and enterprises have to discover first, which bank is more suitable and then go and find out its personal specific terms.
References.
Dauranov I.(2000), Maliy bisnes: problemi oformleniya kredita, Al Pari No.5:82.
Kreditovaniye, 2001 http://www.hsbk.kz/default.asp?page=corporate&n=credit
Kreditovaniye, 2001 http://www.kkb.kz/banking_re/sber/service/06_credit.asp
Osnovniye prinzipi kreditovaniya MP, 2001 http://www.tacisinfo.ru/brochure/banksme/pzayav_m.htm
Sahauyeva Zhanar, 2001, interview
Yevropeyskiy bank rekonstrukzii I razvitiya, 2001 http://www.fund.kz/ebrr_c.html
V. Data Analysis.
Now we will summarize all research paper.
It is very necessary to develop lending system in Kazakhstan. There are many reasons for this: small business creates new workplaces, form middle class, develop trade and production, and it was notices that mainly small business develops and invents new goods and services, because in that way small business has a chance to be marked and successfully manage the business. In order to carry out these functions, enterprises needs money to increase its turnover, employ more workers for development, buy new equipment, buildings, to make capital investments in other companies, etc. For these purposes enterprises are usually demanding money, but most banks most likely to give loans to increase turnover, this is connected with assurance of the loan. For example, our considered “Oasis” company took loan in order to increase working capital, may be bank was fulfilled by this purpose of the company and may be this was one of the reasons of receiving a credit.
There are many documents, demanded in banks from companies, which are trying to receive a loan. But the most important for decision-making is financial statements of the prospective borrowers. Many firms conduct double-accounting, this means, that they give one variant of the financial statements to tax commission and another to investors and banks. It is easy to understand why enterprises do so, they are trying to survive and cheat, and there are many reasons to do this, and one of them high taxes. But, banks know that enterprises conduct separate accounting for them and try to prevent it. For instance, Bank Centercredit, which lent money to “Oasis” company, demanded annual financial statements of the company, which were given up to the tax commission. It is difficult to run a business so, that its financial statements would satisfy banks and enterprises tax aversion.
Another important thing is meeting with representative of credit department of the bank. And it is necessary that your business left a good impression. You will have to show your business, show how it works, your equipment, employees, offices. Each enterprise have o meet with representative if company really wants to receive a loan.
A huge problems arises when enterprise have to assure a loan by giving a pledge to the bank. Two main problems are: that banks underestimate the cost of the pledge and difficulties with preparing documents confirming your ownership of the pledge. Banks prefer real estate as a pledge, but small enterprises do not have any buildings, because they are limited in money. Thus, our banks want more, than enterprises are able to allow themselves.
Important item in receiving a loan both for enterprises and banks is interest rates. As it is expected banks demand too high payment for lending money. Interest rates are too high and most enterprises do not asking for a loan because there will come a day and you will have to pay everything back with high payment for the banks services. Nevertheless, not everything is so bad, there are special programs of supporting small business, which offer lower interest rates, and this is a real chance for enterprises. However, arises another problem: there are too many firms, desiring to receive a loan on lower interest rate. Thus, increase control over maintenance, financial situation of the company, etc. Repayment date is also important, but banks usually make a personal schedule for repayment. Usually there are monthly payments with increasing interest rate.
We can see, that there is many difficulties arise with receiving a loan. Many problems due to banks want to ensure their loans, they want more safe, but enterprises are not able to suit banks’ requirements, thus there are problems with documents, providing liquid enough pledge, meeting with representative of credit department and many-many others.
VI. Conclusion.
From the conducted research we can conclude, that enterprises meet with a very many problems, when they are trying to receive a credit. Our lending system needs to be improved. First of all, banks should be more indulgent to small enterprises, which are not able to meet some requirements of the banks, especially about pledge.
Secondly, there should be more programs on supporting small business, like decreasing interest rates, give credits for a more long periods of time, etc.
Thirdly, banks should stop working only with “big people” with “big money”, but also help small enterprises to enter into market and freely functionate.
There some measures, which were applied in order to improve our lending system, and they are works, but there should be more support to small business, because it is so weak in Kazakhstan. Some enterprises, which are pretty big, rather than others, are gain on these programs, but there should be some support to the beginners.
Checklist.
Respondent: Ms. Sahauyeva Zhanar, the chief accountant of “Oasis” company.
1. Information about company.
1.1 For what purpose company was organized?
1.2 Sources of funded capital (relatives, savings, sponsors)?
1.3 In which sphere do you work (trade or production)?
1.4 How many employees do company has?
2. Goals of receiving a loan.
2.1. How do you think, do small enterprises need to be credited?
2.2. How company used a loan?
2.3. What amount of gain did company received from the loan?
3. Loan.
3.1. In what bank do you prefer to receive a loan?
3.2. What liquid pledge did the company provide?
3.3. What interest rates did the company pay?
3.4. In which terms the company can made a repayment (monthly, quarterly or in the certain date)?
Appendix 2
Table #1
| Regions | For the 1 October 1997 | For the 1 April 1998 |
| Parity of small business wages and region’s (%) | Parity of small business wages and region’s (%) | |
| Akmolinskaya | 64.5 | 74.9 |
| Aktubinskaya | 53.8 | 46.0 |
| Almatinskaya | 91.5 | 75.9 |
| Almaty | 80.2 | 70.9 |
| Atirauskaya | 52.2 | 50.3 |
| Zhambilskaya | 40.3 | 36.9 |
| Karagandinskaya | 38.3 | 35.6 |
| Kizilordinskaya | 45.2 | 41.9 |
| Kostanayskaya | 75.7 | 63.8 |
| Mangistauskaya | 75.2 | 66.7 |
| Pavlodarskaya | 63.5 | 55.9 |
| Total | 680.4 | 618.8 |
(Source: Tukayev, 1998).
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