49550 - MFP-BOP Microfinance Organization “KMF”

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Summary of Investment Information

Project Number

49550

Company Name

KMF Bank JSC

Date SPI Disclosed

May 24, 2024

Country

Kazakhstan

Region

Central Asia and Turkiye

Projected Board Date

May 21, 2024

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Oct 4, 2024

Department

CF5CT - Regional Industry FIG MCT/FIG Central Asia & Turkey

Industry

Financial Markets

Previous Events

Approved : Jul 18, 2024
Signed : Sep 10, 2024
Invested : Oct 2, 2024

Sector

Commercial Banking - Microfinance

Project Description

The Project involves a senior loan of up to US$50 million in US Dollars from IFC’s own account and may include a senior syndicated loan, for on-lending to micro and small enterprises, including women-owned enterprises and agri-business enterprises.

Associated Advisory Engagement

Since 2022, IFC has been supporting ??F transformation from an MFI to a bank. The primary objective of the IFC’s new AS project is to facilitate a qualitative transition to the operating format of a fully functioning bank. This includes, among others, establishing a new sales model and targeted business processes, building a risk management function, and adopting a strategy for incorporating best global ESG practices. The project will facilitate: (1) the emergence of new business models and stronger competition in Kazakhstan's financial sector, (2) increased transparency and data-driven solutions, and (3) stronger inclusion and access to finance.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	50.0
Equity

IFC's loan to the financial institution described in this SII is targeted for on-lending to the following sector(s):

Product Type	Use of Proceeds
Straight Senior Loan	Loans to MSME (mix of Micro and SME)
Straight Senior Loan	Loans to Woman-Owned SMEs
Syndications	Loans to MSME (mix of Micro and SME)
Syndications	Loans to Woman-Owned SMEs
Syndications	Loans to MSME (mix of Micro and SME)
Syndications	Loans to Woman-Owned SMEs

IFC's Definitions of Targeted Sectors can be found here.

Development Impact

Stakeholder effects – Increased access to finance for MSMEs. The Project will support KMF, the largest microfinance institution in the country, in growing its reach to microentrepreneurs and small enterprises, including agricultural and women-owned businesses. Stakeholder effects – Improved access and quality of financial services for MSMEs and consumers: KMF leverages a unique sales model targeting micro and small entrepreneurs from rural areas, involving special agents who regularly travel to clients' places of business. The project will support KMF’s effort to capitalize on this competitive advantage compared to incumbent banks and digital innovators, by helping the company transform into a bank and develop a suite of financial products, including transaction and deposit accounts, digital banking and payment tools, to help increase the penetration of financial services amongst its clients. Contribution to Market Creation - Competitiveness: IFC anticipates that the combination of this Project and its associated advisory engagement will foster competitiveness among financial providers in Kazakhstan by helping the largest MFI in the market transform into a bank and begin offering a variety of credit and non-credit products and services to a clientele traditionally underserved by the banking sector.

IFC’s expected additionality in the Project is both financial and non-financial. Financial additionality will be in the form of financing structure. The proposed project will provide KMF access to US$ 50 million, medium-term financing accompanied by a swap to hedge local currency risk which is not readily available in the local market at reasonable terms. This financing is particularly critical in the context of tightened financial conditions and protracting macroeconomic uncertainty. The proposed financing facility will enable KMF to scale its MSME finance portfolios. Non-financial additionality will take the form of knowledge, innovation, and capacity building as IFC will provide advisory services to facilitate KMF’s transition to a fully functioning bank and supporting the implementation of a new business model for the institution, which would include a new sales model and instruments, a full-fledged e-banking service, introduction of transactional and savings products including cards, deposits and transfers, and adopting a strategy for incorporating ESG tools into banking practices.

E&S Category Rationale / Risks and Mitigation

KMF's portfolio is invested in microfinance, small and consumer loans distributed in sectors of trade, small-scale cattle breeding, services, crop production, small-scale manufacturing, and some other sectors. No exposure to the Exclusion List or coal related projects is reported. Overall, the environmental and social risks of the company’s portfolio are low to medium. The project therefore has been categorized as FI 2 according to the IFC’s Sustainability Policy. For this Project, IFC's applicable requirements will be the IFC Exclusion List and the applicable environmental and social national laws and regulations of Kazakhstan. The Project will not support any activities on IFC Exclusion List, coal-related activities, or borrowers involved in higher-risk business activities involving a) involuntary resettlement, b) risk of adverse impacts on Indigenous Peoples, c) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage, or d) significant occupational health and safety risks. The Company will be required to maintain alignment with IFC’s life & fire safety requirements and the requirements of IFC’s Performance Standard 2 on Labor and Working Conditions and provide regular E&S performance reporting to IFC. The key risks and impacts of the project are associated with KMF’s capacity to handle the risks related to its MSE portfolio.

KMF has developed and maintained satisfactory Environmental and Social Management System (ESMS) in line with IFC’s E&S requirements, appointed E&S staff, and provided related E&S training. The ESMS sets up clear steps to assess E&S and OHS risks in the Company’s portfolio of loans, which include screening against the Exclusion List, coal, and higher risk activities, reputational risk screening, E&S risk categorization of loans, and E&S due diligence, which is recorded in the corresponding E&S due diligence form. The ESMS document is attached with the Exclusion List, appropriate forms and templates to record E&S due diligence and monitoring process, as well as findings and recommendations for decision-making. The ESMS is implemented accordingly, and the E&S due diligence is overall satisfactory. For this project the client will be required to maintain its ESMS capacity and practices.

Contacts

For Inquiries About the Project, Contact

“Microfinance Organization “KMF” LLC
Elena Skufalyaridy
Manager of Financial Institutions Division, Treasury Department
+7 (727) 331-74-74, ext. 156
elena.skufa@kmf.kz
50, Nazarbayev avenue, Almaty 050004, Republic of Kazakhstan
www.kmf.kz

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