KICB SL

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27228
Company name	Kyrgyz Investment & Credit Bank
Country	Kyrgyz Republic
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	July 7, 2008
Projected board date	August 6, 2008
Previous Events	Invested: October 27, 2008 Signed: August 12, 2008 Approved: August 7, 2008

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed investment is to provide up to $5.0 million senior loan to Kyrgyz Investment and Credit Bank (KICB or the Bank), an existing IFC client, one of the most active providers of financial services to private companies and individuals in the Kyrgyz Republic.

IFC would play an important developmental role by providing KICB with additional longer term resources for on-lending to Micro, Small, and Medium Enterprises (MSME), with focus in agriculture sector and increasing its lending operations in rural areas, which have limited access to long term funding.

Kyrgyz Investment and Credit Bank is a closed joint-stock company, which was incorporated in the Kyrgyz Republic in 2001. Since the Bank was established, the Bank has gradually developed as one of the leading providers of financial services to private companies in the country. This is due to a strong board, good management and well developed operating processes.

KICB is currently the fifth largest bank in terms of total assets and the fourth largest bank in terms of total capital in the country. KICB has so far expanded its operations in Bishkek, Osh, Jalalabad, Naryn, and Karakol.

KICB financial position and performance has been satisfactory and improving over the period. Driven by the strong growth of its loan portfolio, the Bank’s total assets have increased notably from $21 million at December 31, 04, to $32 million (52% growth) at December 31, 05, to $47 million (47% growth) at December 31, 06, and further to $84 million (80% growth) at December 31, 07. This trend continued in 2008 with total assets reaching $92 million equivalent, as of March 31, 08, registering 10% growth.

Project sponsor and major shareholders of project company

AKFED holds 21% and Habib Bank 18% equity stake in KICB, EBRD - 17%, DEG -17%, IFC- 17%, and the Kyrgyz State Property Committee – the remaining 10.0%.

-AGA KHAN FOUNDATION FOR ECONOMIC DEVELOPMENT:

For more than 50 years, AKFED has made investments and operated companies in developing countries. AKFED operates over 90 companies worldwide employing over 30,000 people, with combined annual revenues of over $1.5 billion. The Fund is active in 16 countries in the developing world: Afghanistan, Bangladesh, Burkina Faso, the Democratic Republic of the Congo, India, Ivory Coast, Kenya, Kyrgyz Republic, Mali, Mozambique, Pakistan, Senegal, Syria, Tajikistan, Tanzania and Uganda. AKFED seeks to create profitable, sustainable enterprises through long-term investments that result in strong equity positions. This in turn allows AKFED to take a “hands-on” approach by providing managerial and technical expertise. Profits generated by the Fund are reinvested in other economic development initiatives under the AKFED umbrella. The operations are run by an executive committee which meets periodically at Aiglemont near Paris.

- HABIB BANK:

Habib bank has recently entered KICB as a shareholder. Habib is one of the leading banks in Pakistan. Habib bank is performing well since its privatization. AKFED owns 51% of Habib shares. Habib bank’s long term strategy is to have two thirds of revenues from outside Pakistan over the next 8-10 years.

AKFED is leveraging on Habib in East Africa and now, in Central Asia, by using Habib as an equity investor and technical partner. AKFED's strategy in CA is to grow beyond microfinance and hence it has introduced Habib Bank into KICB.

Total project cost and amount and nature of IFC's investment

An IFC senior loan of up to $5.0 million for the benefit of the Kyrgyz Investment and Credit Bank for on-lending to local MSMEs, including in agriculture sector, and increasing its lending operations in rural areas.

Location of project and description of site

KICB is headquartered in Bishkek, Kyrgyz Republic and has its branches in Bishkek, Osh, and Jalalabad.

Anticipated development impact of the project

The project is expected to have a significant development impact as it will enhance the Bank’s ability to lend to MSMEs and will strengthen the Bank’s capacity in environmental and social management. The project will enable the Bank to offer wider financing options to Kyrgyz MSMEs, and will encourage the Bank to expand MSME lending in less developed rural areas of the Kyrgyz Republic that are significantly underserved by the financial sector. Such financing will be crucial for the sustainable development of the private sector across the country that results in improved economic development and poverty reduction.

The project is also expected to contribute to the increased competition in the financial sector and create a demonstration effect for other investors to invest into the MSME segment. In addition, the Bank will need to comply with IFC’s environmental and social management standards and has committed to strengthen its Environmental and Social Management Procedures System. This will strengthen the Bank’s standards in this area and create a demonstration effect for other banks.

IFC's expected development contribution

- Longer Term Funding:

Through this project, IFC would play an important developmental role by providing KICB with additional longer term resources for on-lending to MSMEs, thereby ensuring the Bank’s further growth, loan portfolio diversification and help it become a more sustainable institution while supporting the Kyrgyz MSME sector. Without the proposed funding KICB would not likely be able to get long term funding from other commercial or international financial institutions.

- Catalyzing Growth of MSME Finance:

By providing term funding to enable KICB to expand its MSME lending IFC is helping to catalyze the growth of MSMEs in the Kyrgyz Republic that is a key factor to alleviating poverty in the country as well as employment generation. The proposed project would complement IFC’s commitment to the growth of MSME activities though presence in the Bank’s ownership structure

- Promotion of Environmental and Social Standards of Excellence:

IFC, being global leader for sustainable environmental and social banking practices, continues to be positioned well to help KICB develop further in this regard as part of the loan approval and supervision process, thereby catalyzing industry improvements in the Kyrgyz Republic. It is unlikely that other market players would be able to provide KICB with such an important value added expertise.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure.

As an existing IFC client’s KICB’s applicable performance requirements are the IFC Microfinance Exclusion List and the applicable National Social and Environmental Laws and regulations. KICB has developed a Social & Environmental Management System (SEMS) and appointed staff with responsibility for the same. The most recent annual environmental performance review for KICB identified some supplemental actions which will be addressed as a condition of disbursement for the investment under #27228.

KICB will be required to:

- Upgrade, if necessary its existing SEMS, prior to disbursement to the satisfaction of IFC
- Commit to implement the SEMS, to ensure that its investments/activities supported by IFC financing are in compliance with the Applicable Performance Requirements
- Continue to submit a periodic report to IFC as per a format to be provided by IFC.

IFC PROJECTS